<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 9, 1998
REGISTRATION NO. 333-57165
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 9
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
CENTAUR PHARMACEUTICALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 2834 77-030431
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
484 OAKMEAD PARKWAY
SUNNYVALE, CALIFORNIA 94086
(408) 822-1600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JOSEPH L. TURNER
CHIEF FINANCIAL OFFICER
CENTAUR PHARMACEUTICALS, INC.
484 OAKMEAD PARKWAY
SUNNYVALE, CALIFORNIA 94086
(408) 822-1600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
BARRY J. KRAMER, ESQ. STEPHAN HUTTER, ESQ.
DAVID K. MICHAELS, ESQ. SHEARMAN & STERLING
JODY HUCKO, ESQ. BOCKENHEIMER LANDSTRASSE 55
JAMES M. HACKETT, ESQ. 60325 FRANKFURT AM MAIN
FENWICK & WEST LLP (49 69) 97107 230
TWO PALO ALTO SQUARE
PALO ALTO, CALIFORNIA 94306
(650) 494-0600
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF ANY OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 9, 1998
1,500,000 SHARES
[LOGO OF CENTAUR]
COMMON STOCK
All of the 1,500,000 shares of common stock, par value $0.001 per share (the
"Common Stock") offered hereby are being offered by Centaur Pharmaceuticals,
Inc., a Delaware corporation ("Centaur" or the "Company").
There is no public market for the Common Stock, and it is currently estimated
that the offering price will be $11.00 (approximately 15.27 Swiss francs (CHF)
per share at an assumed exchange rate of $0.7205 per Swiss franc).
See "Underwriting" for factors considered in determining the offering price. It
is anticipated that most, and perhaps all, of the Common Stock offered hereby
will be sold outside of the United States to a limited number of institutional
and private investors. It is currently anticipated that the Company's Common
Stock will not be listed or quoted on any exchange or automated quotation
system, and accordingly it is not anticipated that there will be an active
trading market for the Company's Common Stock as a result of this offering.
FOR A DISCUSSION OF CERTAIN RISKS OF AN INVESTMENT IN THE SHARES OF COMMON
STOCK OFFERED HEREBY, SEE "RISK FACTORS" COMMENCING ON PAGE 7.
-----------
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.
-----------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
INVESTORS COMMISSIONS (1) COMPANY (2)
--------- -------------- -----------
<S> <C> <C> <C>
Per Share (3)........................... $ $ $
Total (3)............................... $ $ $
</TABLE>
- -----
(1) The Company has agreed to indemnify the Managers against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting estimated expenses of the offering payable by the Company
estimated to be $2,075,000.
(3) Based on an assumed exchange rate of $0.7205 per Swiss franc, the per share
price to investors, underwriting discounts and commissions and proceeds to
the Company would be CHF , CHF and CHF , respectively, and the total
price to investors, underwriting discounts and commissions and proceeds to
the Company would be CHF , CHF and CHF , respectively.
-----------
THE COMMON STOCK IS BEING OFFERED BY THE MANAGERS AS SET FORTH UNDER
"UNDERWRITING" HEREIN. IT IS EXPECTED THAT THE DELIVERY OF THE COMMON STOCK
WILL BE MADE ON OR ABOUT OCTOBER , 1998, AGAINST PAYMENT THEREFOR IN
IMMEDIATELY AVAILABLE FUNDS.
GLOBAL COORDINATOR
BANK J. VONTOBEL & CO AG
VECTOR SECURITIES VONTOBEL SECURITIES LTD.
INTERNATIONAL, INC.
SPECIAL U.S. ADVISOR
The date of this Prospectus is , 1998
<PAGE>
[Description of diagram appearing on the inside front cover of the Preliminary
Prospectus: Below text that reads "Oxidative Stress Agents Attack and Destroy
Brain Cells" at the top of the page, appears a diagram of a microscopic view
of brain cells and the neuronal network appearing in the brain with the
following components highlighted and numbered (according to the numbers
appearing on the gatefold):
1) a diagram of normal mitochondria, represented by an oval, cell-like
structure with a number of bulbous formations contained within it, within the
main brain cell depicted, with low levels of Oxidative Stress Agents (OSA),
represented by small electrical energy bolts, emanating from it;
2) a diagram of aged, slightly disfigured mitochondria within the main brain
cell depicted, with OSA, represented by electrical energy bolts, emanating
from it;
3) a diagram of swollen (larger) mitochondria within the main brain cell
depicted with a series of dots appearing to flow into it from synaptic endings
from other brain cells, with OSA, represented by electrical energy bolts,
emanating from the mitochondria;
4) a diagram of brain inflammatory cells, represented by an amoeba-like
structure near the surfaces of the main brain cell depicted and other neurons
throughout the diagram, with OSA, represented by electrical energy bolts,
emanating from it to the surface of the cells;
5) a diagram of mitochondria with OSA causing cell membrane peroxidation from
the outside, represented by electrical energy bolts and dots, between it and
membrane lipids, represented by amorphous cells attached to the surface of the
brain cell;
6) a diagram of mitochondria with OSA causing peroxidation from the inside,
represented by electrical energy bolts and dots, between it and membrane
lipids, represented by amorphous cells attached to the surface of the brain
cell, and the formation of other toxins near disconnected neuron endings,
represented by electrical energy bolts and bubbles forming from it; and
7) a diagram of the nucleus within the main brain cell depicted with the DNA
double helix splitting apart.]
NO ACTION HAS BEEN OR WILL BE TAKEN IN ANY JURISDICTION BY THE COMPANY OR
ANY MANAGER THAT WOULD PERMIT A PUBLIC OFFERING OF THE SHARES OF THE COMPANY'S
COMMON STOCK, OR POSSESSION OR DISTRIBUTION OF THIS PROSPECTUS, IN ANY
JURISDICTION OTHER THAN THE UNITED STATES. PERSONS INTO WHOSE POSSESSION THIS
PROSPECTUS COMES ARE REQUIRED BY THE COMPANY AND THE MANAGERS TO INFORM
THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO THE OFFERING OF THE
SHARES OF COMMON STOCK AND THE DISTRIBUTION OF THIS PROSPECTUS.
----------------
CENTAUR AND NRT ARE TRADEMARKS OF THE COMPANY. ALL OTHER TRADEMARKS INCLUDED
IN THIS PROSPECTUS ARE THE PROPERTY OF THEIR RESPECTIVE HOLDERS.
2
<PAGE>
1[Description of diagram appearing in gatefold of Preliminary Prospectus: At
the top of the right column appears a diagram of a human brain shown from above
and displaying the two hemispheres of the brain.]
Oxidative Stress Agents Attack and Destroy Brain Cells.
Neurodegeneration is a complex process. Oxidative stress is among the factors
that damages neurons. OSA can be produced and cause neuronal damage in a number
of ways, including:
(1) Normal mitochondria produce low levels of OSA as a by-product of energy
generation.
(2) Aged mitochondria produce more OSA than normal mitochondria.
(3) OSA also can be produced through the loss and subsequent restoration of
blood flow (e.g., stroke).
(4) The activation of brain inflammatory cells results in the production of OSA
that can contribute to the onset and progression of neurodegenerative diseases
(e.g., Parkinson's disease, Alzheimer's disease and AIDS dementia).
(5) OSA can also damage neurons by causing peroxidation of membrane lipids.
(6) The initial OSA production can indirectly cause formation of other toxins,
such as nitric oxide and inflammatory cytokines.
(7) OSA can damage DNA.
The Company believes that its proprietary compounds ([tm]NRTs) decrease the
level of OSA and neuronal damage.
- --------------------------------------------------------------------------------
Oxidative Stress Agents (OSA) Implicated in Neurodegenerative Disease
PARKINSON'S DISEASE
Parkinson's disease is a degenerative neurological disorder caused by a
shortage of the neurotransmitter dopamine. This shortage results from neuronal
injury and death. A growing body of evidence suggests that OSA contribute to
Parkinson's disease progression.
STROKE
Stroke results from the interruption of blood flow to the brain. Restoration of
blood flow results in OSA production that can cause cell damage and death.
Stroke patients may become paralyzed, comatose or die.
AIDS DEMENTIA COMPLEX
AIDS dementia complex refers to the neurological and cognitive impairments
frequently associated with acquired immune deficiency syndrome (AIDS). The
Company believes that this condition is caused by toxins and brain inflammation
produced as a result of HIV infection. The toxins and inflammation can damage
or destroy neurons through oxidative stress.
ALZHEIMER'S DISEASE
Alzheimer's disease is a debilitating neurodegenerative disease that causes
progressive loss of memory, ability to communicate and abstract thinking
skills. Studies suggest that OSA and neuroinflammation may be important to both
the onset and the progression of this disease.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. Except as set forth in the audited financial statements or as
otherwise indicated, all information in this Prospectus reflects the conversion
of all of the Company's outstanding shares of Preferred Stock into shares of
Common Stock, which will occur upon the closing of this offering. References in
this Prospectus to "U.S. Dollars," "US $," or "$" are to United States currency
and references to "CHF" are to Swiss francs. The Company has presented its
financial statements in accordance with United States generally accepted
accounting principles ("U.S. GAAP") in U.S. Dollars. See "Description of
Capital Stock," "Underwriting" and Notes 1 and 7 of Notes to Financial
Statements.
THE COMPANY
Centaur Pharmaceuticals, Inc. ("Centaur" or the "Company") is developing a
novel class of small molecule pharmaceutical compounds, which the Company calls
(TM)NRTs (nitrone related therapeutics), for the treatment of diseases
involving oxidative stress. Oxidative stress results from the formation of free
radicals and other reactive oxygen species (collectively referred to as
"oxidative stress agents" or "OSA") that can damage cells. OSA are produced as
by-products of the body's normal metabolism of oxygen and nutrients, as a
result of the activation of white blood cells during inflammation, through the
loss and subsequent restoration of blood flow (ischemia/reperfusion) and due to
trauma, radiation and infection. The Company believes that NRTs may have
several mechanisms of action, including (i) neutralizing OSA, thereby
protecting cells from potential damage, (ii) preventing OSA from inducing genes
to produce toxins that can damage or destroy cells and (iii) slowing the
release of cytokines which induce inflammation.
The Company's initial therapeutic targets are neurodegenerative conditions
such as Parkinson's disease, acute cerebral stroke ("stroke"), AIDS dementia
complex ("AIDS dementia") and Alzheimer's disease, in which the Company
believes oxidative stress is a major cause of neuronal damage. The Company has
completed Phase I clinical studies in the United States of an orally
administered NRT for the treatment of Parkinson's disease. In collaboration
with Astra AB, a multinational pharmaceutical company based in Sweden
("Astra"), Phase I clinical studies of an NRT for the intravenous treatment of
stroke have been completed in Sweden, and potential lead compounds for
Alzheimer's disease are being tested. The Company is currently conducting a
Phase I clinical trial in HIV-infected volunteers of an orally administered NRT
for the treatment of AIDS dementia. Centaur believes that its NRT technology
also provides a broad platform for developing therapeutics for other diseases
in which oxidative stress and inflammation are important and has established
research programs evaluating NRTs to treat arthritis, myocardial infarction,
inflammatory bowel disease, multiple sclerosis, ophthalmic disorders and other
diseases.
Centaur's technology evolved from work with the compound a-phenyl-N-t-butyl-
nitrone ("PBN"), a well-known antioxidant that has been shown to reduce
cellular damage resulting from oxidative stress and inflammation in preclinical
models. Centaur has developed a library of proprietary NRTs that the Company
believes may act to slow or reverse the potentially dangerous effects of
oxidative stress and inflammation. Centaur has developed candidate NRTs for
both oral and intravenous administration. No treatment-limiting side effects
have been observed in Phase I clinical testing of these compounds.
Parkinson's disease is a degenerative neurological disorder caused by a
shortage of the neurotransmitter dopamine. Dopamine is essential for movement
control. A growing body of evidence suggests that oxidative stress contributes
to Parkinson's disease progression. In certain preclinical models, Centaur's
lead compound provided significant protection to dopamine-producing and other
cells in the brain, suggesting potential efficacy against the progressive loss
of motor and mental function characteristic of Parkinson's disease. Centaur
initiated Phase I clinical testing in humans in July 1996 to test safety and
obtain a pharmacokinetic profile in healthy volunteers. These studies were
recently completed, and no treatment-limiting side effects were observed. The
3
<PAGE>
Company plans to commence a Phase IIa clinical trial by the end of 1998 for the
purpose of testing safety and evaluating preliminary efficacy information in
Parkinson's disease patients.
Centaur's NRT for the treatment of stroke protects nerve cells against death
in recognized preclinical stroke models. Preclinical studies suggest that the
compound may be effective in humans when administered up to six or more hours
after the stroke has occurred. This long window of activity is important
because stroke patients often experience delays of several hours before
receiving treatment. Astra began Phase I clinical testing of Centaur's stroke
NRT in Sweden in 1997 to test safety and obtain a pharmacokinetic profile in
healthy volunteers. These studies were recently completed, and no treatment-
limiting side effects were observed. The Company and Astra plan to commence a
Phase IIa clinical trial in Europe by the end of 1998 for the purpose of
testing safety and evaluating preliminary efficacy information in stroke
patients.
AIDS dementia refers to the debilitating neurological and cognitive
impairments associated with acquired immune deficiency syndrome (AIDS). The
Company believes that AIDS dementia is caused by toxins and brain inflammation
produced as a result of HIV infection. In addition, the Company believes that
the same NRT under development to treat Parkinson's disease may also be
effective as a treatment for AIDS dementia. In in vitro tests using human brain
cells, this NRT provided significant protection to such cells from toxins and
inflammation associated with AIDS dementia. A Phase I clinical study in HIV-
infected volunteers commenced in 1997 and is in progress. The Company plans to
commence a Phase II clinical trial by the end of 1998 for the purpose of
testing safety and obtaining efficacy information in AIDS dementia patients.
The Company's Alzheimer's disease research program focuses on preventing
nerve cell damage associated with neuroinflammation related to b-amyloid
protein deposition in the brain. b-amyloid deposits have been associated with
the memory loss and behavioral disorders characteristic of Alzheimer's disease.
The Company's research findings from both cell culture and in vivo models
suggest that NRTs may prevent loss of neuronal cell function or prevent
neuronal cell death induced by inflammatory agents and b-amyloid peptides. In
related studies, the administration of NRTs has diminished the cognitive
decline in older animals with learning and memory deficits.
The Company has also established a number of research programs to evaluate
NRTs for the treatment of other diseases. The Company believes that one of the
most promising is the evaluation of NRTs for the treatment of arthritis. The
Company believes that oxidative stress plays an important role in the
pathophysiology of arthritis and that NRTs could prove to be effective
therapeutics for this disease. Candidate compounds for this purpose have been
identified, and research to select a clinical lead compound is underway.
In June 1995, Centaur entered into a collaborative agreement with Astra (the
"Astra Agreement") to develop new drugs for the treatment of stroke,
Alzheimer's disease, traumatic brain injury and multi-infarct dementia. Under
the Astra Agreement, Astra (i) pays Centaur up to $6.0 million per year for 5
years, primarily to fund research by Centaur for these conditions, (ii)
conducts most of the development of NRTs for these conditions, (iii) makes
payments to Centaur based upon the achievement of certain development
milestones and (iv) pays royalties to Centaur on sales of licensed products, in
exchange for exclusive worldwide marketing and other rights. Centaur retains
worldwide manufacturing rights for the active ingredient of the products and
has an option to obtain certain co-promotion rights in the United States.
Approximately $27.9 million has been received through June 30, 1998 by Centaur
under the Astra Agreement. In October 1996, the Company entered into a
collaborative agreement with H. Lundbeck A/S ("Lundbeck") to jointly
commercialize the Company's NRT for Parkinson's disease (the "Lundbeck
Agreement"). In March 1998, Lundbeck terminated the Lundbeck Agreement based
primarily on a claim that Centaur had breached the agreement by commencing
clinical trials for AIDS dementia, using the same compound as is being used in
the Company's Parkinson's disease clinical trials, without obtaining consent
from Lundbeck. This claim was disputed by the Company. In July 1998, the
Company and Lundbeck entered into an agreement releasing each party from
further obligations or claims under the Lundbeck Agreement.
4
<PAGE>
Centaur has built a strong proprietary position protecting its NRT technology
which includes ownership of, or license rights to, 24 United States patents, 23
United States patent applications, 37 foreign patents and 137 foreign patent
applications related to NRTs and their use as pharmaceuticals.
The Company employs 86 persons, including 23 with Ph.D. and/or M.D. degrees.
The Company occupies a modern 31,000 square foot facility located in Sunnyvale,
California and has leased a 77,000 square foot facility in Santa Clara,
California, in which it is constructing a 30,000 square foot manufacturing
plant that is designed to comply with the U.S. Food and Drug Administration
("FDA") Good Manufacturing Practices ("GMP") regulations.
The Company's executive offices are located at 484 Oakmead Parkway,
Sunnyvale, California 94086. Its telephone number is (408) 822-1600.
THE OFFERING
<TABLE>
<C> <S>
Common Stock Offered....................... 1,500,000 shares(1)
Outstanding after the offering............. 15,343,118 shares(1)
Use of proceeds............................ Funding of research and
development, capital expenditures
and general corporate purposes,
including working capital. See
"Use of Proceeds."
Swiss security ID number................... 917088
ISIN code.................................. CH0009170884
Settlement system.......................... SEGA. See "Description of Capital
Stock--Transfer of Shares."
Expected Closing........................... October , 1998
</TABLE>
It is anticipated that most, and perhaps all, of the Common Stock offered
hereby will be sold outside of the United States to a limited number of
institutional and private investors. While the shares of Common Stock offered
hereby may be traded from time to time in the Swiss over-the-counter market, it
is currently anticipated that the Common Stock will not be listed or quoted on
any exchange or automated quotation system. Accordingly, it is not anticipated
that there will be an active trading market for the Company's Common Stock as a
result of this offering. See "Risk Factors--No Public Trading Market for Common
Stock; Potential Volatility of Stock Price; Description of Capital Stock--
Transfer of Shares" and "Underwriting."
Certain stockholders of the Company have entered into certain restrictions
with respect to the disposition of their shares. See "Shares Eligible for
Future Sale" and "Underwriting."
- --------
(1) Based on the number of shares outstanding as of June 30, 1998. Excludes (i)
1,789,782 shares of Common Stock subject to options outstanding as of June
30, 1998 under the Company's 1993 Equity Incentive Plan (the "1993
Incentive Plan"), at a weighted average per share exercise price of $1.59;
(ii) 92,565 shares of Common Stock reserved as of June 30, 1998 for future
grant or issuance under the 1993 Incentive Plan; (iii) 68,603 shares of
Common Stock reserved as of June 30, 1998 for issuance upon the exercise of
warrants at a weighted average per share exercise price of $2.69; and (iv)
1,250,000 shares of Common Stock reserved for future grant or issuance
under the Company's 1998 Equity Incentive Plan (the "1998 Incentive Plan"),
1998 Directors Stock Option Plan (the "Directors Plan") and 1998 Employee
Stock Purchase Plan (the "Purchase Plan"). See "Management--Directors
Compensation" and "--Employee Benefit Plans" and Notes 7 and 9 of Notes to
Financial Statements.
5
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------- ----------------
1993(1) 1994(1) 1995 1996 1997 1997(1) 1998(1)
------- ------- ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenue............. $ -- $ 156 $7,875 $12,743 $ 9,573 $ 6,387 $ 3,624
Operating expenses:
Research and
development........... 925 2,735 5,490 7,854 15,646 7,817 7,032
General and
administrative........ 309 912 1,385 2,306 2,266 1,486 1,526
------- ------- ------ ------- ------- ------- -------
Total operating
expenses............... 1,234 3,647 6,875 10,160 17,912 9,303 8,558
------- ------- ------ ------- ------- ------- -------
Income (loss) from
operations............. (1,234) (3,491) 1,000 2,583 (8,339) (2,916) (4,934)
Interest and other
income, net............ 35 41 491 362 1,107 530 160
------- ------- ------ ------- ------- ------- -------
Net income (loss)....... $(1,199) $(3,450) $1,491 $ 2,945 $(7,232) $(2,386) $(4,774)
======= ======= ====== ======= ======= ======= =======
Net income (loss) per
share(2):
Basic................. $ (0.50) $ (1.44) $ 0.62 $ 1.15 $ (2.64) $ (0.88) $ (1.64)
Diluted............... $ (0.50) $ (1.44) $ 0.13 $ 0.24 $ (2.64) $ (0.88) $ (1.64)
Shares used in computing
net income (loss) per
share(2):
Basic................. 2,400 2,401 2,403 2,551 2,742 2,711 2,906
Diluted............... 2,400 2,401 11,602 12,514 2,742 2,711 2,906
Pro forma net loss per
share, basic and
diluted (2)............ $ (0.55) $ (0.35)
Shares used in computing
pro forma net loss per
share, basic and
diluted (2)............ 13,243 13,829
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998(1)
------------------------------------
ACTUAL PRO FORMA(3) AS ADJUSTED(4)
------- ------------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short term
investments.............................. $16,728 $16,728 $30,246
Working capital........................... 13,509 13,509 27,027
Total assets.............................. 29,306 29,306 42,824
Long term portion of debt financing....... 6,975 6,975 6,975
Redeemable convertible preferred stock.... 28,105 -- --
Accumulated deficit....................... (12,325) (12,325) (12,325)
Total stockholders' equity (net capital
deficiency).............................. (11,191) 16,914 30,432
</TABLE>
- --------
(1) Unaudited.
(2) See Note 1 of Notes to Financial Statements for an explanation of the
determination of shares used in computing net income (loss) per share.
(3) Gives pro forma effect to the conversion of outstanding Redeemable
Convertible Preferred Stock ("Preferred Stock") into Common Stock
immediately prior to the completion of this offering.
(4) Adjusted to reflect the sale of 1,500,000 shares of Common Stock offered by
the Company hereby at an assumed offering price per share of $11.00
(approximately CHF 15.27 at an assumed exchange rate of $0.7205 per Swiss
franc), and after deducting the estimated underwriting discounts and
commissions and offering expenses.
6
<PAGE>
RISK FACTORS
The shares offered hereby involve a high degree of risk. The following risk
factors should be considered carefully in addition to the other information in
this Prospectus before purchasing the shares of Common Stock offered hereby.
In addition to the historical information contained herein, the discussion in
this Prospectus contains certain forward-looking statements that involve risks
and uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The cautionary statements made in this Prospectus
should be read as being applicable to all related forward-looking statements
wherever they appear in this Prospectus. The Company's actual results could
differ materially from those discussed in this Prospectus. Factors that could
cause or contribute to such differences include those discussed below, as well
as those discussed elsewhere herein.
EARLY STAGE OF DEVELOPMENT; TECHNOLOGICAL UNCERTAINTIES
Centaur was incorporated in March 1992 and is in an early stage of
development. All of the Company's potential products are in early stages of
research, development or testing, and no revenues have been generated from the
sale of products. Products resulting from the Company's research and
development efforts, if any, are not expected to be commercially available for
at least several years. The Company's potential products will require
substantial additional research and development, preclinical and clinical
testing and regulatory approval prior to commercialization. There can be no
assurance that the Company's product development efforts will progress as
expected, if at all. In addition, the Company's products are subject to the
risks of failure inherent in the development of pharmaceutical products based
on new technologies. These risks include the possibilities that the Company's
product candidates will not receive FDA approval (or equivalent approvals
outside the United States) or market acceptance; that any or all of the
Company's product candidates will be found to be unsafe or ineffective; that
the products, if safe and effective, will be difficult to manufacture on a
large scale or uneconomical to market; that proprietary rights of third
parties will preclude the Company from marketing such products; or that third
parties will market superior or more cost-effective products. As a result,
there can be no assurance that the Company will be able to produce any
commercially viable products, and this would have a material adverse effect on
the Company's business, financial condition and results of operations.
UNCERTAINTY OF PRECLINICAL AND CLINICAL TRIALS
The Company's potential products are subject to the risks of failure
inherent in the development of pharmaceutical products and will require
additional development, preclinical studies, clinical trials and regulatory
approval prior to commercialization. Most of the diseases and disorders being
targeted by the Company are highly complex, their causes, and the extent of
OSA involvement in such diseases and disorders, are not fully known, and there
are no widely accepted in vitro or in vivo models of such diseases and
disorders. The Company tests potential compounds in a number of models that
are believed to provide useful information about the compound, but there can
be no assurance that any or all of such models are valid predictors of the
activity of the compound in humans. Data received from tests conducted in such
models can be subject to different interpretations, and there can be no
assurance that the Company's interpretation is correct. Some of the Company's
lead compounds have failed to demonstrate efficacy in at least one of the
numerous models in which they have been tested. Currently, the Company's
Parkinson's disease, AIDS dementia and stroke product candidates are all in or
have just recently completed Phase I clinical trials. All other product
candidates are in various stages of preclinical testing or research. The
results of preclinical and early clinical studies may not be predictive of
results that will be obtained in later stage testing. There can be no
assurance that the Company's ongoing clinical trials will be completed, that
clinical trials of the Company's products under development will be permitted,
or if permitted, will be completed, or that clinical trials will demonstrate
the safety and efficacy of any products to the extent necessary to obtain
regulatory approvals for marketing or will result in marketable products. The
Company's potential products could prove to have undesirable side effects or
other characteristics that may prevent or limit their commercial use. In
addition, there can be no assurance that any of the Company's products will
ultimately obtain approval to be marketed from the FDA or similar foreign
marketing approvals
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for any indication or that an approved compound will be capable of being
produced in commercial quantities at a reasonable cost and successfully
marketed. The failure to adequately demonstrate the safety and efficacy of a
therapeutic product under development would delay or prevent regulatory
approval of the product and could have a material adverse effect on the
Company.
The ability to undertake and complete clinical trials in a timely manner is
dependent upon, among other factors, the enrollment of patients to meet
inclusion criteria of the investigational protocol. Patient accrual is a
function of many factors, including the size of the patient population, the
proximity of patients to clinical sites, the eligibility criteria for the
study and the existence of competitive clinical studies. Delays in planned
patient enrollment in future clinical trials may result in increased costs,
program delays or both, which could have a material adverse effect on the
Company.
NOVEL THERAPEUTIC APPROACH
The Company's product development efforts center around its family of NRTs
that the Company believes protect against the damaging effects of oxidation
and inflammation caused by OSA. Initially, the Company has targeted
neurodegenerative diseases and disorders where it believes that oxidative
stress is a major cause of neuronal damage, and it has recently expanded its
research and development efforts into other areas, including arthritis,
myocardial infarction, inflammatory bowel disease and ophthalmic disorders.
The Company's novel approach has not been widely studied, the mechanisms of
action of its technology and compounds are not well understood, and many of
the diseases and disorders being targeted by the Company do not have widely
accepted in vitro or in vivo models of such disease. Accordingly there can be
no assurance that the Company's approach, technologies or product candidates
will prove to be successful. Moreover, the Company is focusing on new
treatments for conditions that are also the subject of research and
development of other companies. The Company's competitors may succeed in
developing products that are more efficacious, more cost-effective or safer
than the Company's product candidates. Rapid technological change or
developments by others may result in the Company's technology or proposed
products becoming obsolete or noncompetitive. See "--Competition; Rapid
Technological Change."
DEPENDENCE UPON COLLABORATORS
The Company's strategy for the development and commercialization of its
products includes maintaining and entering into various collaborations with
corporate partners, licensors, licensees and others. The Company currently has
a collaborative arrangement with Astra for the research, development and
marketing of drugs for the treatment of stroke, Alzheimer's disease, traumatic
brain injury and multi-infarct dementia. There can be no assurance that the
interests and motivations of Astra are, or will remain, aligned with those of
the Company or that Astra will successfully perform its development,
regulatory compliance or marketing functions, or that such collaboration will
continue. The Company's revenues to date have consisted primarily of research
and development support from Astra under the Astra Agreement, and to a
significantly lesser extent from Lundbeck under the now terminated Lundbeck
Agreement and from U.S. government research grants. There can be no assurance
that the Company will be able to negotiate additional collaborative
arrangements in the future on acceptable terms, if at all, or that any such
collaborative arrangements will be successful. To the extent that the Company
is not able to maintain or establish such arrangements, the Company would be
required to undertake such activities at its own expense, which would
significantly increase the Company's capital requirements and limit the
programs that the Company is able to pursue. In addition, the Company may
encounter significant delays in introducing its products into certain markets
or find that the development, manufacture or sale of its products in such
markets is adversely affected by the absence of such collaborative agreements.
The Company cannot control the amount and timing of resources that its
collaborative partners devote to the Company's programs or potential products,
which can vary because of factors unrelated to the potential product.
Collaborative participation will depend not only on the achievement of
research and development objectives by the Company and its collaborators,
which cannot be assured, but also on each collaborator's own financial,
competitive, marketing and strategic considerations, which are outside the
Company's control. Such
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strategic considerations may include the relative advantages of alternative
products being marketed or developed by others, including relevant patent and
proprietary positions. The Company's collaborative partners may develop,
either alone or with others, products that compete with the development and
marketing of the Company's products. Competing products, either developed by
the collaborative partners or to which the collaborative partners have rights,
may result in their withdrawal of support with respect to all or a portion of
the Company's technology, which would have a material adverse effect on the
Company's business, financial condition and results of operations. Astra has
the ability under the Astra Agreement to terminate the Astra Agreement, in
whole or in part, upon twelve months notice, and can terminate research
funding and the Company's manufacturing rights under the Astra Agreement if
more than 30% of the Company's voting capital stock is acquired by a company
engaged in the manufacture and/or sale of pharmaceutical products. Future
agreements with collaborative partners, if any, may provide such partners with
similar termination rights. If Astra or any future collaborative partner
breaches or terminates their agreements with the Company or otherwise fails to
conduct their collaborative activities in a timely manner, the preclinical or
clinical development or commercialization of product candidates or research
programs will be delayed, and the Company will be required to devote
additional resources to product development and commercialization or terminate
certain development programs. For example, in March 1998, Lundbeck terminated
its agreement with the Company for the development and marketing of drugs to
treat Parkinson's disease. There also can be no assurance that disputes will
not arise in the future with respect to the ownership of rights to any
technology developed with third parties. These and other possible
disagreements between collaborators and the Company could lead to delays in
the research, development and commercialization of certain product candidates
or could require or result in litigation or arbitration, which would be time
consuming and expensive, and would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Astra Alliance."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
Since inception, the Company has funded its operations primarily through
equity investments and research and development support under the Astra
Agreement and, to a significantly lesser extent, payments under the now
terminated Lundbeck Agreement and U.S. government research grants. The Company
has generated no product revenue, and none is expected for at least several
years. The Company believes that its current resources, together with the
estimated proceeds of this offering, will be sufficient to meet its capital
requirements for the next twelve months. There can be no assurance that the
Company will not require additional funds during this period in order to
continue its research and development programs and to enter into and sustain
preclinical and clinical testing. The Company anticipates that following this
period, it will need to raise substantial additional funds for research,
development, expansion of manufacturing and administrative facilities and
other expenses, through equity or debt financings, research and development
grants, collaborative relationships or otherwise, prior to the
commercialization of any of its products. The Company's capital requirements
depend on numerous factors, including the progress of the Company's research
and development programs, manufacturing activities, revenues or investments
from collaborators, the scope and results of preclinical and clinical testing,
the time and costs involved in obtaining regulatory approval, the cost of
filing, prosecuting, defending and enforcing any patent claims and other
intellectual property rights, competing technological and market developments,
changes in the Company's existing research relationships and the ability of
the Company to establish additional collaborative and other arrangements.
There can be no assurance that any additional funding will be available to the
Company or, if available, that it will be on reasonable terms. Any additional
financing may result in dilution to existing stockholders. If adequate funds
are not available, the Company may be required to significantly curtail its
research and development programs, including clinical trials, or enter into
arrangements that may require the Company to relinquish certain material
rights to its potential products on terms that it might otherwise find
unacceptable.
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HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT; UNCERTAINTY OF FUTURE
PROFITABILITY
The Company has experienced net losses of $7.2 million and $4.8 million for
the year ended December 31, 1997 and the six months ended June 30, 1998,
respectively. As of June 30, 1998, the Company had an accumulated deficit of
$12.3 million. Substantially all of the Company's revenues to date have been
derived from funding from Astra and, to a significantly lesser extent, the now
terminated Lundbeck Agreement and U.S. government research grants. Revenues
from product sales and collaborative agreement royalties are not expected for
at least several years, if at all. There can be no assurance that the Company
will ever achieve significant revenues or profitable operations.
NO ASSURANCE OF FDA APPROVAL; COMPREHENSIVE GOVERNMENT REGULATION
The Company's research, development, manufacturing, preclinical and clinical
testing, labeling, distribution, advertising, marketing, promotion and sales
activities, as well as the operations of its current and any future
collaborators, are subject to extensive regulation by numerous government
authorities in the United States and other countries. The Company's potential
products require governmental approvals for commercialization, which have not
yet been obtained and applications are not expected for at least several
years. The regulatory process, which includes preclinical and clinical testing
to establish safety and efficacy of the product, and possibly post-marketing
testing to confirm safety and/or efficacy, and confirmation by the FDA that
good laboratory, clinical and manufacturing practices were maintained during
testing and manufacturing, can take many years and requires the expenditure of
substantial funds and other resources. The Company has had only limited
experience in conducting preclinical testing and human clinical trials and
obtaining FDA and other regulatory approvals for investigations, and no
experience in obtaining FDA and other regulatory approvals for marketing. Data
obtained from preclinical and clinical activities are susceptible to varying
interpretations, which could delay, limit or prevent regulatory approval. In
addition, delays or rejection may be encountered based upon changes in, or
additions to, regulatory policies for drug approval during the period of
product development and regulatory review. Delays in obtaining such approvals
could adversely affect the marketing of products developed by the Company and
the Company's ability to generate commercial product revenues. There can be no
assurance that requisite regulatory approvals will be obtained within a
reasonable period of time, if at all, or that any approved labeling will not
have significant limitations pertaining to the conditions of use.
Additionally, the Phase I clinical studies for the Company's stroke drug
candidate were conducted by Astra in Sweden, and Astra currently plans to also
conduct a Phase IIa clinical trial of this compound in Europe. These studies
are not being conducted under an FDA Investigational New Drug application
("IND") and accordingly there can be no assurance that the FDA will accept the
studies to support regulatory filings in the United States. If regulatory
approval of a product is granted, the approval may impose limitations on the
indications or other conditions of use for which such product may be marketed.
Except for a narrow exception related to peer reviewed reprints and reference
texts, FDA requirements prohibit the marketing or promotion of a drug for
unapproved indications. Further, even if regulatory approval is obtained, the
Company, any marketed product, and its manufacturing facilities would be
subject to continual review and periodic inspections, and later discovery of
previously unknown problems with a product, the Company or its facilities may
result in restrictions, including withdrawal of the product from the market.
Failure to comply with the applicable regulatory requirements can, among other
things, result in fines, suspensions and/or withdrawals of regulatory
approvals, product recalls, prohibitions against manufacture, distribution,
sales and/or marketing, operating restrictions and criminal prosecution of a
company and/or its officers and employees. The Company is also subject to
numerous environmental, health and workplace safety laws and regulations,
including those governing laboratory procedures and the handling of hazardous
materials. Any violations of, and cost of compliance with, these laws and
regulations could materially adversely affect the Company's business,
financial condition and results of operations. See "Business--Government
Regulation."
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DEPENDENCE ON LICENSES, PATENTS AND PROPRIETARY TECHNOLOGY
The Company exclusively licenses certain core technology related to its NRTs
from the University of Kentucky Research Foundation ("UKRF") and the Oklahoma
Medical Research Foundation ("OMRF"), subject to certain very limited
exceptions. The Company will be obligated to pay royalties on products, if
any, incorporating this or other licensed technology. The Company may be
required to obtain additional licenses to patents or other proprietary rights
from third parties. There can be no assurance that any licenses required under
any patents or proprietary rights will be made available on terms acceptable
to the Company, if at all. If the Company does not obtain required licenses,
it could encounter delays in product development while it attempts to redesign
products or methods, or it could find that the development, manufacture or
sale of products requiring such licenses is foreclosed.
The Company's success will depend to a significant degree on its ability to
obtain, maintain and enforce patent protection for its products and
manufacturing processes or license rights to applicable patents, preserve its
trade secrets and operate without infringing the proprietary rights of third
parties both in the United States and other countries. The degree of patent
protection afforded to pharmaceutical and biomedical inventions is uncertain
and involves complex legal and factual questions; therefore, the breadth of
claims allowed in pharmaceutical and biomedical patents cannot be predicted.
The product candidates important to Centaur are subject to the above
uncertainties. The Company has ongoing research efforts and expects to seek
additional patents covering this research in the future. There can be no
assurance that patent applications relating to the Company's potential
products or technology will result in patents being issued or that, if issued,
such patents, or the Company's current patents, will afford adequate
protection to the Company, provide a competitive advantage or not be
challenged, invalidated or infringed. In the past, in order to increase the
value of the protection afforded by certain patents it had licensed, the
Company has initiated actions in the United States Patent and Trademark Office
("PTO") to amend these already issued patents. The Company is engaged in one
such action now, and there can be no assurance that this action or any future
action will be successful. Furthermore, there can be no assurance that others
will not independently develop similar products or processes, duplicate any of
the Company's products or, if patents are issued to the Company, design around
such patents. In this regard, it should be noted that PBN, the compound from
which much of the Company's technology evolved, and certain related compounds,
are not covered by composition of matter patents. Although the Company has
issued and pending patents covering certain methods of use of these compounds,
the Company cannot prevent others from using these compounds for other uses.
In addition, litigation, which would result in substantial cost to the
Company, may be necessary to enforce any patents issued to the Company or to
determine the scope and validity of the proprietary rights of third parties.
In certain cases, the Company is dependent upon third parties for the
prosecution of patents and patent applications for technology that the Company
licenses, such as the core technology related to its NRTs licensed from UKRF
and OMRF. Failure of these third parties to effectively prosecute such patents
could have a material adverse effect on the Company's business and results of
operations.
Competitors of the Company may have filed patent applications, may have been
issued patents or may obtain additional patents and proprietary rights
relating to products or processes competitive with those of the Company. There
is a substantial backlog of pharmaceutical and biomedical patent applications
at the PTO. Accordingly, the time at which the Company's or its competitors'
patent applications will issue as patents cannot be predicted. Patent
applications in the United States are maintained in secrecy until patents
issue, and publication of discoveries in scientific or patent literature often
lag behind the actual discoveries. Thus, the Company cannot be certain that it
has been or will be the first to discover the subject matter covered by its
patent applications or patents or that it was the first to file patent
applications for such inventions. The Company may, therefore, have to
participate in interference proceedings declared by the PTO or litigation to
determine priority of inventions, either of which could result in substantial
cost to the Company.
The Company's success will also depend, in part, on its not infringing
patents issued to others and not breaching the technology licenses upon which
the Company's products are based. The Company has received correspondence from
an individual who has obtained certain patents related to the use of PBN and
related compounds and who has indicated that he believes that the Company
needs to license his patents. The Company does not believe that these patents
materially adversely affect its ability to develop and commercialize its
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products. If, however, the Company is required to defend against charges of
patent infringement or breach of a license or to protect its own proprietary
rights against such individual or other third parties, the Company may incur
substantial cost and could lose rights to develop or market certain products
and/or enforce certain patents. If the Company's product candidates are found
to infringe upon the patents of others, or otherwise impermissibly utilize the
intellectual property of others, the Company's development, manufacture and
sale of such potential products could be severely restricted or prohibited. In
such event, the Company may be required to obtain licenses to patents or other
proprietary rights of third parties. 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. If the Company does
not obtain such licenses, it could encounter delays in product market
introductions while it attempts to design around such patents or other rights,
or it may be unable to develop, manufacture or sell such products. In
addition, the breach of an existing or future license may have a material
adverse effect on the Company's business, financial condition and results of
operations.
The Company also seeks to protect its proprietary technology, including
technology which may not be patented or patentable, by confidentiality
agreements and, if applicable, invention assignment agreements with its
collaborators, advisors, employees and consultants. There can be no assurance
that these agreements will not be breached, that the Company will have
adequate remedies for any breach or that the Company's trade secrets will not
otherwise be disclosed to, or discovered by, competitors. There can be no
assurance that such persons or institutions will not assert rights to
intellectual property arising out of their research. See "Business--Patents,
Trade Secrets and Licenses."
The Company has received grants from the U.S. National Institutes of Health
("NIH") to fund various of its projects. These grants give the U.S. government
certain rights to license for its own use inventions resulting from funded
work, and in certain very limited circumstances to grant others the right to
use such inventions. There can be no assurance that the Company's proprietary
position will not be materially adversely affected should the government
exercise these rights.
COMPETITION; RAPID TECHNOLOGICAL CHANGE
The pharmaceutical industry is subject to intense competition and rapid and
significant technological change. Competitors of Centaur in the United States
and abroad are numerous and include, among others, pharmaceutical and
biotechnology companies, universities, and other research institutions. Many
of these companies and institutions are actively engaged in activities similar
to those of the Company, including research and development of products for
Parkinson's disease, stroke, AIDS dementia, Alzheimer's disease and arthritis.
While the Company believes that its products may offer significant advantages
over available products, currently marketed products often have a significant
competitive advantage over new entrants. If regulatory approvals are received,
certain of the Company's potential products will compete with well-
established, FDA approved proprietary and generic therapies that have
generated substantial sales over a number of years and which are reimbursed
from government health administration authorities and private health insurers.
There can be no assurance that the Company's products under development will
be able to compete successfully with existing therapies or with products under
development by its competitors. Many of these competitors have substantially
greater financial and technical resources and production and marketing
capabilities than the Company, and certain of these competitors may compete
with the Company in establishing development and marketing agreements with
pharmaceutical companies. In addition, many of the Company's competitors have
greater experience than the Company in conducting preclinical testing and
human clinical trials and obtaining FDA and other regulatory approvals. The
Company's competitors may succeed in obtaining FDA approval for products
sooner than the Company.
DEPENDENCE UPON KEY PERSONNEL; NEED TO ATTRACT QUALIFIED EMPLOYEES AND
CONSULTANTS
The Company is highly dependent on certain members of its management and
scientific staff. In addition, the Company relies on certain consultants and
advisors. The loss of one or more of these key personnel could have a material
adverse effect on the Company's research, development and product marketing
efforts. In
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addition, the Company believes that its future success will depend in large
part upon its ability to attract and retain highly skilled scientific and
managerial personnel, particularly as the Company expands its activities in
clinical trials and the regulatory approval process. The Company faces
significant competition for such personnel from other companies, research and
academic institutions, government entities and other organizations. There can
be no assurance that the Company will be successful in hiring or retaining the
personnel it requires for continued growth. The failure to hire and retain
such personnel could materially adversely affect the Company's business,
financial condition and results of operations. The Company intends to grant
additional stock options and provide other forms of incentive compensation to
attract and retain such key personnel. The Company has established a
Scientific Advisory Board ("SAB") composed of individuals with expertise in
free radical chemistry, drug discovery model development, drug screening,
clinical pharmacology and clinical medicine. SAB members assist the Company in
identifying scientific and product development opportunities, review with
management the progress of the Company's projects and assist in the
recruitment and evaluation of the Company's scientific staff. SAB members
receive compensation for the services they provide to the Company. Most SAB
members have substantial commitments to third parties, which commitments may
conflict or compete with their obligation to the Company. Accordingly, such
persons will be able to devote only a small portion of their time to matters
related to the Company.
ABSENCE OF SALES AND MARKETING EXPERIENCE AND LIMITED MANUFACTURING
CAPABILITIES
The Company has no experience in product sales, marketing or distribution.
The Company has entered into a marketing agreement with Astra for stroke,
Alzheimer's disease, traumatic brain injury and multi-infarct dementia
indications and intends to establish marketing arrangements with other
pharmaceutical companies with effective distribution capabilities in order to
market other product candidates. There can be no assurance that the Company
will be successful in entering into such arrangements. If the Company does
enter into marketing arrangements in the future, sales of the Company's
products will depend heavily upon the efforts of Astra and other third
parties, and there can be no assurance that such efforts will be successful.
The Company also may need to acquire its own direct sales force for certain
products, and there can be no assurance that the Company will be able to
recruit and retain adequate sales, marketing and distribution personnel or
that such direct marketing will be able to compete successfully in the
pharmaceutical market.
The Company plans to manufacture bulk product for its drug candidates at its
facilities in Sunnyvale and Santa Clara, California and/or at other locations
that may be established in the future. To date, the Company has manufactured
only a small amount of pharmaceutical compounds for preclinical and clinical
studies at its Sunnyvale facility. The Company is currently completing the
construction, and beginning the process of seeking regulatory approval, of a
30,000 square foot manufacturing facility in Santa Clara which is expected to
be sufficient to produce the amount of product needed for clinical trials and
early commercial sales. There can be no assurance that the Santa Clara
facility will be satisfactorily completed. Additionally, the Santa Clara
facility is not expected to be capable of producing the quantity of the
Company's products that may be needed for later stage commercial sales.
Accordingly, the Company expects to need to develop substantial additional
capacity by expanding its current facilities or building new facilities. To
meet projected time schedules, the Company may commence construction and/or
otherwise commit itself to additional capacity prior to FDA or other
regulatory approval of the products to be manufactured at the new facility.
The cost of any new facility would be substantial, and such facility could
ultimately prove to be unnecessary if the required approvals are not obtained
or market demand is insufficient. Additionally, there can be no assurance that
such a large scale manufacturing facility can be satisfactorily constructed
and operated in compliance with applicable regulatory requirements or that the
Company will be able to manufacture in an efficient and cost-effective manner.
The State of California, the FDA and other U.S. and international regulatory
authorities will inspect the Company's manufacturing facilities on a regular
basis to determine compliance with applicable regulations. Failure to comply
with applicable state, FDA and other regulatory requirements can, among other
things, result in fines, suspensions and/or withdrawals of regulatory
approvals, product recalls, prohibitions against manufacture, distribution,
sales and/or marketing, operating restrictions and criminal prosecution of a
company
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and/or its officers and employees. If the Company is unable to manufacture its
own products, it will need to seek third-party manufacturers. There can be no
assurance that the Company will be able to enter into such arrangements on
favorable terms. The manufacturing of sufficient quantities of new drugs is a
time consuming, complex and unpredictable process. If the Company is unable to
fully develop its own manufacturing capabilities or obtain and maintain third-
party manufacturing arrangements on acceptable terms, this could materially
impair the Company's competitive position and the possibility of the Company
achieving regulatory approval and/or profitability. See "Business--
Manufacturing" and "--Government Regulation."
MANAGEMENT DISCRETION AS TO USE OF PROCEEDS
The Company expects to use the net proceeds of the offering to fund research
and development, including preclinical and clinical programs, for capital
expenditures and for other general corporate purposes. As such, the Company's
management will retain broad discretion as to the allocation of a significant
portion of the net proceeds of the offering. As a result of such discretion,
the Company's management could allocate the proceeds of the offering to uses
which stockholders may not deem desirable. In addition, there can be no
assurance that the proceeds can or will be invested to yield an acceptable
return. See "Use of Proceeds."
RISK OF PRODUCT LIABILITY AND LIMITED INSURANCE
Exposure to potential product liability claims is inherent in the testing,
manufacturing, marketing and sale of human therapeutics. The use of the
Company's product candidates in clinical trials will also expose the Company
to product liability claims and possible adverse publicity. These risks
increase with respect to the Company's product candidates, if any, that
receive regulatory approval for sale. The Company currently has limited
product liability insurance coverage for the clinical research use of its
product candidates. There can be no assurance that the Company will be able to
maintain this coverage on acceptable terms or that it will be adequate to
cover product liability claims if they arise. The Company does not have
product liability coverage for the commercial sale of its products but intends
to obtain such coverage if its products are approved for commercial use.
However, there can be no assurance that the Company will be able to obtain
additional insurance coverage on acceptable terms, if at all, or that a
product liability claim would not materially adversely affect the business,
financial condition or results of operations of the Company. The Company
intends to evaluate its coverage on a regular basis and in connection with the
clinical testing and subsequent commercial introduction of its products under
development, but such coverage is expensive and may not be available on
acceptable terms or in sufficient amounts.
DEPENDENCE ON THIRD-PARTY REIMBURSEMENT; UNCERTAINTY OF HEALTH CARE REFORM
In both domestic and foreign markets, the ability of the Company to
commercialize its products will depend, in part, on the availability of
reimbursement from third-party payors, such as government health
administration authorities, private health insurers and other organizations.
Third-party payors are increasingly challenging the price and cost
effectiveness of medical products and significant uncertainty exists as to the
reimbursement status of newly approved health care products. There can be no
assurance that the Company's potential products will be considered cost
effective or that adequate third-party reimbursement will be available to
enable the Company to maintain price levels sufficient to realize an
appropriate return on its investment in product development. In addition, for
international sales of the Company's products, the Company and its
collaborators will be required to seek reimbursement on a country by country
basis. In certain foreign countries, the Company's potential products may be
subject to governmentally mandated prices that are artificially low. If
adequate coverage and reimbursement levels are not provided by the government
and other third-party payors for uses of the Company's therapeutic products,
the market acceptance of these products could be materially adversely
affected. Additionally, healthcare reform is receiving significant attention
both in the United States and abroad, and legislation and regulations
affecting the pricing of and reimbursement for pharmaceuticals may adversely
change before the Company's products are approved for commercial use.
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ANIMAL TESTING; HAZARDOUS MATERIALS
Much of the Company's research and development involves the testing of
compounds on laboratory animals. The Company may be adversely affected by
changes in laws and regulations or by social pressures that would restrict the
use of animals in testing or by actions against the Company or its
collaborators by groups of individuals opposed to such testing. In addition,
research and development processes sponsored by the Company involve the
controlled use of hazardous materials. The Company and its collaborators are
subject to various international, federal, state and local laws governing the
use, manufacture, storage, handling and disposal of hazardous materials. While
the Company believes that its safety procedures involving such materials are
adequate and comply with prescribed legal standards, the risk of accidental
contamination or injury cannot be completely eliminated. Such an event at the
Company's facilities or the facilities of any collaborator could result in the
Company being held liable for damages, which could have a material adverse
effect on the Company's business, financial condition and results of
operations. The Company contracts with third parties to remove hazardous
wastes generated by the Company. The disposal of such waste, third-party waste
disposal companies contracted by the Company, and their disposal sites are
regulated by the Environmental Protection Agency ("EPA"). The Company is
unaware of any actions initiated by the EPA against it, its third-party waste
disposal companies or their disposal sites. Such an action by the EPA could
have a material adverse effect on the Company's business, financial condition
or results of operations if it were to be held liable in whole or in part for
any clean up costs. See "Business--Government Regulations."
NO PUBLIC TRADING MARKET FOR COMMON STOCK; POTENTIAL VOLATILITY OF STOCK PRICE
There is at present no public or other trading market for the Common Stock
of the Company, and the Company does not expect that an active trading market
for the Common Stock will exist as a result of this offering. The shares of
Common Stock offered hereby may trade from time to time on the Swiss over-the-
counter market. Bank Vontobel & Co. AG ("Bank Vontobel") has advised the
Company that it presently intends to make a market in the Common Stock. The
Company is not aware of any other financial institution that intends to make a
market in the Common Stock. As a result, any liquidity provided by this
market-making will depend on the continued activities of Bank Vontobel. Bank
Vontobel is not obligated, however, to make a market in the Common Stock and
any such market making may be discontinued at any time at the sole discretion
of Bank Vontobel. In addition, the Company expects that the Common Stock
offered hereby will be purchased by a relatively small number of investors.
Accordingly, no assurance can be given as to the liquidity of, or existence of
any trading markets for, the shares of Common Stock offered hereby. While
indications of the price at which investors might be willing to buy or sell
shares of Common Stock may be available from time to time to banks, brokers
and other financial institutions over electronic media, and may be available
through Bank Vontobel, this information will not otherwise be available
generally to the public. In addition, this information may not be indicative
of the price at which shares of Common Stock could actually be purchased or
sold. Information as to the price and volume of actual transactions in the
Common Stock in the Swiss over-the-counter market is not publicly reported or
available in any printed or electronic media. Furthermore, the Swiss over-the-
counter market is not subject to specific regulation or regulatory oversight.
See "Description of Capital Stock--Transfer of Shares."
The Company may list shares of its Common Stock on a securities exchange or
automated quotation system at some point in the future. However, any such
listing will likely only be possible if the Company can successfully complete
a future public offering of its Common Stock, and the ability of the Company
to consummate any such public offering will depend on a number of factors at
that time, including market conditions for public offerings and the general
condition of the securities markets, the prospects for the Company's business,
the state of the Company's development and its historical and anticipated
results of operations. Accordingly, no assurances can be given as to whether
the Company will ever be able to effect any future public offering or listing,
or as to whether an active trading market for the Common Stock otherwise will
develop or be sustained.
15
<PAGE>
The offering price of the Common Stock has been established by negotiations
between the Company and the Global Coordinator. See "Underwriting" for a
discussion of the factors considered in determining the initial offering
price. There can be no assurance that the offering price will be indicative of
the trading price (if any) of the Company's Common Stock after the offering.
The trading price (if any) of the shares of Common Stock, like that of the
common stock of many other early stage pharmaceutical and biotechnology
companies, may be highly volatile. Factors such as announcements of
technological innovations or new commercial products by the Company or its
competitors, disclosure of results of clinical testing or regulatory
proceedings, government regulations and approvals, developments in patent or
other proprietary rights, public concern as to the safety of products
developed by the Company and general market conditions may have a significant
effect on the market price of the Common Stock. In addition, most of the
world's stock markets have experienced significant price and volume
fluctuations in recent years. This volatility has significantly affected the
market prices of securities of many pharmaceutical and biotechnology companies
for reasons frequently unrelated to or disproportionate to the operating
performance of the specific companies. These broad market fluctuations may
adversely affect the trading price (if any) of the Company's Common Stock.
Finally, the volatility of the trading price (if any) of the Company's Common
Stock is likely to be significantly increased, and the trading price (if any)
adversely affected, by the relative illiquidity of any trading market for the
Common Stock.
ABSENCE OF REGISTRATION UNDER SECURITIES EXCHANGE ACT
The Common Stock will not be registered with the U.S. Securities Exchange
Commission under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Accordingly, the Company will not be required to comply with
certain requirements of the Exchange Act, including its proxy rules.
Furthermore, its officers, directors, and holders of 10% or more of its Common
Stock will not be subject to its provisions relating to short-swing profits
and reporting of their purchases and sales and acquirors of more than five
percent of the outstanding Common Stock will not be subject to disclosure
requirements under Section 13(d) of the Exchange Act. In addition, after March
31, 1999, the Company may be entitled to terminate its obligation to comply
with the periodic reporting requirements of the Exchange Act. However, the
Company has no present intention to terminate this reporting obligation. The
Company intends to furnish its stockholders with an annual report containing
audited financial statements and a report thereon by its independent auditors,
and to make available to its stockholders its interim reports for each of the
first three quarters of its fiscal year containing unaudited financial
information. However, such reports would not provide some of the information
that would be included in periodic reports filed under the Exchange Act. As a
result, termination of the Company's reporting obligations under the Exchange
Act would reduce the information available to stockholders about the business
and financial condition of the Company.
YEAR 2000 COMPLIANCE
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. Software failures due to
processing errors potentially arising from calculations using the Year 2000
date are a known risk. The Company has established procedures for evaluating
and managing the risks and costs associated with this problem and expects to
replace software that is not Year 2000 compliant by mid-1999. There can be no
assurance that such procedures will be successful or that the date change from
1999 to 2000 will not have a material adverse affect on Centaur's business,
operating results and financial condition. The Company's operations may also
be affected by the ability of third parties dealing with Centaur to manage the
effect of the Year 2000 date change.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of the Company's Common Stock (including shares issued upon the
exercise of outstanding options or warrants) after this offering could
adversely affect the trading price (if any) of the Common Stock. Such sales
also might make it more difficult for the Company to sell equity or equity-
related securities in the future at a time and price that the Company deems
appropriate. In addition to the 1,500,000 shares of Common Stock
16
<PAGE>
offered by the Company hereby, as of June 30, 1998, there were approximately
13,843,118 shares of Common Stock outstanding. 13,510,451 of such shares of
Common Stock are subject to lock-up agreements that provide that such shares
may not be sold for 180 days following the U.S. Registration Statement
Effective Date. Bank Vontobel may, in its sole discretion and at any time
without notice, release all or any portion of the securities subject to lock-
up agreements. Shares permitted to be sold under the lock-up agreements and
shares released from the lock-up agreements will generally be immediately
saleable on the Swiss over-the-counter market, subject to compliance with
certain conditions. Soon after the date of this Prospectus, the Company
expects to register approximately 3,007,347 shares of the Common Stock
reserved for issuance under its stock option plans (based on options
outstanding, and available for grant, as of June 30, 1998). See "Shares
Eligible for Future Sale." In addition, after giving effect to this offering,
holders of 12,789,980 shares of Common Stock and warrants exercisable for
Common Stock are entitled to certain rights with respect to registration of
such shares of Common Stock for offer and sale to the public. See "Description
of Capital Stock--Registration Rights."
CONTROL BY EXISTING STOCKHOLDERS
Upon completion of this offering, the present directors, executive officers
and 5% stockholders of the Company and their affiliates will beneficially own
approximately 65.0% of the Company's outstanding Common Stock. As a result,
these stockholders would likely be able to control the management and affairs
of the Company and exercise significant influence over all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions such as a merger, consolidation or sale of
substantially all of the Company's assets. Such concentration of ownership may
have the effect of delaying or preventing a change in control of the Company
and might affect the trading price (if any) of the Company's Common Stock and
the voting and other rights of the other stockholders. See "Principal
Stockholders."
EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS
Although only Common Stock will be outstanding after the closing of this
offering and the Company has no current plans to issue shares of preferred
stock, the Company's Board of Directors will have the authority to issue up to
three million shares of preferred stock and to determine the price, rights,
preferences, privileges and restrictions, including voting rights, of those
shares without any further vote or action by the 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. The issuance of preferred stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes, 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. The Company also has the
authority to issue shares of its authorized but unissued Common Stock without
further stockholder approval. However, the Company has agreed to certain
limitations on its ability to issue additional stock without stockholder
approval until December 31, 1999. See "Underwriting." Additionally, certain
provisions of the Company's charter documents and of Delaware corporate law
could discourage potential acquisition proposals and could delay or prevent a
change in control of the Company. These provisions are designed to reduce the
vulnerability of the Company to an unsolicited acquisition proposal. These
provisions are also intended to discourage certain tactics that may be used in
proxy fights. However, such provisions could have the effect of discouraging
others from making tender offers for the Company's shares, and, as a
consequence, they also may inhibit increases in the market price of the
Company's shares, that could result from actual or rumored takeover attempts.
Such provisions also may have the effect of preventing changes in the
management of the Company. In addition, Section 203 of the Delaware General
Corporation Law, which could become applicable to the Company in the future if
it lists on a U.S. national securities exchange or the Nasdaq National Market,
or has more than 2,000 stockholders of record, restricts certain business
combinations with any "interested stockholder" as defined by such statute. The
statute may have the effect of delaying, deferring or preventing a change in
control of the Company. See "Description of Capital Stock."
Additionally, under the Astra Agreement, Astra can terminate research
funding and the Company's manufacturing rights if more than 30% of the
Company's voting capital stock is acquired by a company engaged
17
<PAGE>
in the manufacture and/or sale of pharmaceutical products. This may make
Centaur less valuable to a potential pharmaceutical acquiror and thereby
decrease the likelihood that such a company would pursue an acquisition of
Centaur or decrease the price that such a company would be willing to pay for
Centaur. See "Business--Astra Alliance."
IMMEDIATE AND SUBSTANTIAL DILUTION; DIVIDENDS
The offering price for the Company's Common Stock is substantially higher
than the net tangible book value per share of the Company's Common Stock.
Investors purchasing shares of the Company's Common Stock in this offering
will therefore incur immediate and substantial dilution in net tangible book
value of $9.02 per share (at an assumed offering price of $11.00). To the
extent that options or warrants (currently outstanding or subsequently
granted) to purchase the Common Stock are exercised, there will be further
dilution. If the net proceeds of this offering, together with funds from
collaborations and research grants, are insufficient to satisfy the Company's
cash needs, the Company may decide to sell additional equity or convertible
debt securities. The sale of such additional securities will result in
additional dilution to the Company's stockholders. See "Dilution."
The Company has never paid dividends and does not intend to pay any cash
dividends in the foreseeable future. See "Dividend Policy."
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements, including,
without limitation, statements containing the words "believes," "anticipates,"
"expects" and words of similar import. Such forward-looking statements involve
known and unknown risks, uncertainties and other factors which may cause the
actual results, financial condition, performance or achievements of the
Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such forward-
looking statements. Such factors include, among others, the following: the
early stage of the Company's development and uncertainties related to its
technology, the uncertainty of preclinical and clinical trials of potential
products, the Company's novel therapeutic approach, the Company's dependence
on collaborative partners, future capital needs and the uncertainty of
additional funding, the Company's prior operating losses and accumulated
deficit and the uncertainty of future profitability, the need for FDA approval
and government regulation of the Company's operations and potential products,
dependence on licenses, patents and proprietary technology, competition from
other biotechnology, chemical and pharmaceutical companies, attraction and
retention of technologically skilled employees, absence of sales and marketing
experience and limited manufacturing capabilities, management's discretion as
to use of proceeds, risks of product liability and limitations on insurance,
dependence on third party reimbursement for potential products, uncertainties
relating to health care reform, risks of animal testing and use of hazardous
materials, absence of a public trading market in the Common Stock and possible
volatility of the stock price, Year 2000 compliance issues, the number of
shares of Common Stock available for future sale in the public market, the
control by existing stockholders, certain anti-takeover provisions of the
Company's organizational documents and contracts and other factors referenced
in the Prospectus. Given these uncertainties, prospective investors are
cautioned not to place undue reliance on such forward-looking statements. The
Company disclaims any obligation to update any such forward-looking statements
to reflect future events or developments.
18
<PAGE>
THE COMPANY
The Company's technology emerged from research begun in the 1980's by the
Company's scientific founders, Dr. John Carney, then at the University of
Oklahoma, and Dr. Robert Floyd at the Oklahoma Medical Research Foundation,
with a compound known as PBN. The Company was incorporated under the name
Centaur Pharmaceuticals, Inc. on March 17, 1992. Since its inception, the
Company has been developing a novel class of small molecule pharmaceutical
compounds, which the Company calls NRTs, for the treatment of diseases
involving oxidative stress. The Company's initial therapeutic targets are
neurodegenerative conditions such as Parkinson's disease, stroke, AIDS
dementia and Alzheimer's disease, in which the Company believes oxidative
stress is a major cause of neuronal damage. The Company has also established
research programs evaluating NRTs to treat arthritis, myocardial infarction,
inflammatory bowel disease, multiple sclerosis, ophthalmic disorders and other
diseases. The Company does not own any equity securities of any other
corporation, except for a small investment in Cutanix Corporation. See
"Business--Cutanix--Skin Care Affiliate." The Company is a Delaware
corporation with perpetual existence whose registered office in the State of
Delaware is c/o Corporation Service Company, 1013 Centre Road, Wilmington,
Delaware.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,500,000 shares of
Common Stock offered by the Company hereby will be approximately $13.5 million
at an assumed offering price of $11.00 per share, and after deducting the
estimated underwriting discounts and commissions and offering expenses.
Centaur expects to use the net proceeds of the offering as follows: (i) $10
million to fund its research and development programs not covered by Astra,
including the Company's programs for the treatment of Parkinson's disease,
AIDS dementia, and arthritis; (ii) $1 million for capital expenditures; and
(iii) the remainder for general corporate purposes, including working capital.
The amount and timing of expenditures will depend upon numerous factors,
including the progress of the Company's research and development programs,
progress with preclinical and clinical trials, the establishment of additional
collaborative relationships, if any, or the modification or termination of the
Company's existing collaborative relationship, the cost of manufacturing
scale-up, the development of marketing activities, if undertaken by the
Company, the cost of preparing, filing, prosecuting, maintaining and enforcing
patent claims and other intellectual property rights and competing
technological and market developments. Furthermore, a portion of the net
proceeds of the offering may be used to acquire other technologies or products
that complement the business of the Company, although no such transactions are
being planned or negotiated as of the date hereof. Pending such application,
the Company intends to invest such net proceeds in short-term, interest-
bearing investment grade securities.
DIVIDEND POLICY
Dividends are payable on the Common Stock only at such times and in such
amounts as the Board of Directors may from time to time determine, subject to
certain limitations. See "Description of Capital Stock." The Company has not
paid any cash dividends on its capital stock to date. The Company currently
anticipates that it will retain any future earnings for use in its business
and does not anticipate paying any cash dividends in the foreseeable future.
19
<PAGE>
CAPITALIZATION
The following table sets forth, as of June 30, 1998, the (i) actual
capitalization of the Company, (ii) the capitalization of the Company on a pro
forma basis to give effect to the conversion of all outstanding shares of
Preferred Stock into Common Stock immediately prior to the closing of this
offering, and (iii) the capitalization of the Company as adjusted to give
effect to the sale of the 1,500,000 shares of Common Stock offered by the
Company hereby and the receipt of the net proceeds therefrom (at an assumed
offering price of $11.00 per share, and after deducting the estimated
underwriting discounts and commissions and offering expenses). See
"Description of Capital Stock" for a description of the Company's authorized
and issued capital stock.
<TABLE>
<CAPTION>
JUNE 30, 1998
--------------------------
PRO AS
ACTUAL FORMA ADJUSTED
------- ------- --------
(US$ IN THOUSANDS,
EXCEPT SHARE AND PER
SHARE DATA)
<S> <C> <C> <C>
Cash, cash equivalents and short term investments. $16,728 $16,728 $ 30,246
======= ======= ========
Obligations under capital lease................... $ 108 $ 108 $ 108
======= ======= ========
Obligation under debt financing (including short
term portion) (1)................................ $ 8,659 $ 8,659 $ 8,659
======= ======= ========
Preferred Stock, $0.001 par value (2): 10,922,735
shares authorized; 10,922,735 shares issued and
outstanding; aggregate redemption value of
$28,310,242; no shares authorized, issued and
outstanding pro forma or as adjusted............. $28,105 $ -- $ --
------- ------- --------
Stockholders' equity(2):
Preferred stock, $0.001 par value: no shares
authorized, issued or outstanding; 3,000,000
shares authorized pro forma and as adjusted; no
shares issued or outstanding pro forma or as
adjusted....................................... -- -- --
Common Stock, $0.001 par value (3): 18,200,000
shares authorized; 2,920,383 shares issued and
outstanding; 33,000,000 shares authorized pro
forma and as adjusted; 13,843,118 shares issued
and outstanding pro forma; 15,343,118 shares
issued and outstanding as adjusted............. 3 14 15
Additional paid-in capital...................... 4,680 32,774 46,291
Deferred compensation, net...................... (3,542) (3,542) (3,542)
Accumulated other comprehensive income.......... (7) (7) (7)
Accumulated deficit............................. (12,325) (12,325) (12,325)
------- ------- --------
Total stockholders' equity (net capital
deficiency).................................... (11,191) 16,914 30,432
------- ------- --------
Total capitalization.............................. $16,914 $16,914 $ 30,432
======= ======= ========
</TABLE>
- --------
(1) Includes approximately $1.7 million short-term and approximately $7.0
million long-term obligations under debt financing. See Note 9 of Notes to
Financial Statements.
(2) See Note 7 of Notes to Financial Statements.
(3) Based on the number of shares outstanding as of June 30, 1998. Excludes
(i) 1,789,782 shares of Common Stock subject to options outstanding as of
June 30, 1998 under the Company's 1993 Incentive Plan, at a weighted
average per share exercise price of $1.59; (ii) 92,565 shares of Common
Stock reserved as of such date for future grant or issuance under the
Company's 1993 Incentive Plan; (iii) 68,603 shares of Common Stock
reserved as of such date for issuance upon the exercise of warrants, at a
weighted average per share exercise price of $2.69; and (iv) 1,250,000
shares of Common Stock reserved for future grant or issuance under the
Company's 1998 Incentive Plan, Directors Plan and Purchase Plan. See
"Management--Directors Compensation" and "--Employee Benefit Plans", and
Note 7 of Notes to Financial Statements.
20
<PAGE>
DILUTION
The pro forma net tangible book value of the Common Stock as of June 30,
1998, assuming the conversion of all outstanding shares of Preferred Stock
into shares of Common Stock, was $16,914,000 or $1.22 per share. "Pro forma
net tangible book value per share" is determined by dividing the number of
outstanding shares of Common Stock into the net tangible book value of the
Company (total tangible assets less total liabilities). After giving effect to
the sale of the 1,500,000 shares of Common Stock offered by the Company hereby
and the receipt of the net proceeds therefrom at an assumed offering price of
$11.00 per share (after deducting the estimated underwriting discounts and
commissions and offering expenses), the pro forma net tangible book value of
the Company as of June 30, 1998 would have been $30,432,000, or $1.98 per
share. This represents an immediate increase in net tangible book value of
$0.76 per share to existing stockholders and an immediate dilution of $9.02
per share to new investors purchasing shares at the offering price. See "Risk
Factors--Immediate and Substantial Dilution; Dividends." The following table
illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed offering price per share............................ $11.00
Pro forma net tangible book value per share as of June 30,
1998..................................................... $1.22
Increase per share attributable to new investors.......... 0.76
-----
Pro forma net tangible book value per share after offering.. 1.98
------
Dilution per share to new investors......................... $ 9.02
======
</TABLE>
The following table sets forth, on a pro forma basis as of June 30, 1998,
the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price per share paid by the
existing stockholders and by the investors purchasing shares of Common Stock
in this offering (at an assumed offering price of $11.00 per share, and before
deducting the estimated underwriting discounts and commissions):
<TABLE>
<CAPTION>
TOTAL CASH
SHARES PURCHASED CONSIDERATION AVERAGE
------------------ -------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 13,843,118 90.2% $ 28,233,000 63.1% $ 2.04
New investors ................ 1,500,000 9.8 16,500,000 36.9 11.00
---------- ----- ------------ -----
Total..................... 15,343,118 100.0% $ 44,733,000 100.0%
========== ===== ============ =====
</TABLE>
As of June 30, 1998, there were options outstanding to purchase a total of
1,789,782 shares of Common Stock, at a weighted average per share exercise
price of $1.59, and warrants outstanding to purchase 68,603 shares of Common
Stock, at a weighted average per share exercise price of $2.69. To the extent
that any of these options or warrants is exercised, there will be further
dilution to new investors. See "Capitalization" and Note 7 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 each of the three years in the period ended
December 31, 1997 and balance sheet data at December 31, 1995, 1996 and 1997,
are derived from the financial statements of the Company that have been
audited by Ernst & Young LLP, independent auditors, which are included
elsewhere in this Prospectus and are qualified by reference to such financial
statements and the notes related thereto. The statement of operations data for
the years ended December 31, 1993 and 1994 and the balance sheet data at
December 31, 1993 and 1994 are derived from unaudited financial statements not
included in this Prospectus. The statement of operations data for the six
months ended June 30, 1997 and 1998 and the balance sheet data as of June 30,
1998 are derived from unaudited financial statements included elsewhere
herein. The unaudited financial statements, in the opinion of the management
of the Company, include all adjustments, consisting only of normal recurring
adjustments, that the Company considers necessary for a fair presentation of
the financial position and results of operations for these periods. The
selected financial data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and notes thereto included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------- ----------------
1993(1) 1994(1) 1995 1996 1997 1997(1) 1998(1)
------- ------- ------ -------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenue............. $ -- $ 156 $7,875 $ 12,743 $ 9,573 $ 6,387 $ 3,624
Operating expenses:
Research and
development........... 925 2,735 5,490 7,854 15,646 7,817 7,032
General and
administrative........ 309 912 1,385 2,306 2,266 1,486 1,526
------- ------- ------ -------- ------- ------- -------
Total operating
expenses............... 1,234 3,647 6,875 10,160 17,912 9,303 8,558
------- ------- ------ -------- ------- ------- -------
Income (loss) from
operations............. (1,234) (3,491) 1,000 2,583 (8,339) (2,916) (4,934)
Interest and other
income, net............ 35 41 491 362 1,107 530 160
------- ------- ------ -------- ------- ------- -------
Net income (loss)....... $(1,199) $(3,450) $1,491 $ 2,945 $(7,232) $(2,386) $(4,774)
======= ======= ====== ======== ======= ======= =======
Net income (loss) per
share(2):
Basic.................. $ (0.50) $ (1.44) $ 0.62 $ 1.15 $ (2.64) $ (0.88) $ (1.64)
Diluted................ $ (0.50) $ (1.44) $ 0.13 $ 0.24 $ (2.64) $ (0.88) $ (1.64)
Shares used in computing
net income (loss) per
share(2):
Basic.................. 2,400 2,401 2,403 2,551 2,742 2,711 2,906
Diluted................ 2,400 2,401 11,602 12,514 2,742 2,711 2,906
Pro forma net loss per
share, basic and
diluted (2)............ $ (0.55) $ (0.35)
Shares used in computing
pro forma net loss per
share, basic and
diluted (2)............ 13,243 13,829
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------- JUNE 30,
1993(1) 1994(1) 1995 1996 1997 1998(1)
------- ------- ------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents
and short term
investments............ $ 2,390 $ 7,088 $ 8,699 $ 10,966 $ 13,633 $ 16,728
Working capital......... 2,224 6,803 8,199 10,234 11,300 13,509
Total assets............ 3,433 7,985 11,058 15,407 24,243 29,306
Long-term portion of
obligations under
capital lease.......... -- 561 343 210 -- --
Long-term portion of
debt financing......... -- -- -- -- -- 6,975
Redeemable convertible
preferred stock (3).... 4,428 11,698 11,698 11,698 28,105 28,105
Accumulated deficit..... (1,305) (4,755) (3,264) (319) (7,551) (12,325)
Total stockholders'
equity (net capital
deficiency)............ 3,225 7,013 (3,196) (245) (7,035) (11,191)
</TABLE>
- --------
(1) Unaudited.
(2) See Note 1 of Notes to Financial Statements for an explanation of the
determination of shares used in computing net income (loss) per share.
(3) Shares of Preferred Stock convert to Common Stock immediately prior to the
completion of this offering. See "Capitalization" and Note 7 of Notes to
Financial Statements.
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 Notes thereto included elsewhere in this Prospectus. This
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ from those anticipated
in these forward-looking statements. Factors that may cause such a difference
include, but are not limited to, those set forth under "Risk Factors."
OVERVIEW
The Company was incorporated in March 1992 and has devoted substantially all
of its resources since that time to the research and development of
proprietary, small molecule pharmaceutical compounds for the treatment of
diseases involving oxidative stress. From inception through June 30, 1998, the
Company has recognized cumulative revenues from collaborative research and
development agreements and grants of $34.0 million. The Company does not
anticipate revenues from product sales or collaborative agreement royalties
for at least several years. The Company's sources of potential revenue for the
next several years will be payments under existing and possible future
collaborative arrangements, U.S. government research grants and possible
manufacturing revenue from existing and possible future collaborators for the
manufacture of bulk drug product for use in clinical testing. The Company has
incurred cumulative losses through June 30, 1998 of $12.3 million. The Company
expects to incur additional operating losses over at least the next several
years as the Company continues its clinical trial programs and expands its
research and preclinical development.
In June 1995, the Company entered into a collaborative agreement with Astra
for the research, development and marketing of NRT-related drugs to treat
stroke, Alzheimer's disease, traumatic brain injury and multi-infarct
dementia. Under the terms of the Astra Agreement, Centaur is primarily
responsible for research work and Astra is primarily responsible for
development work, including conducting clinical trials. Astra paid Centaur $4
million upon execution of the Astra Agreement as reimbursement for certain
previously incurred costs. The Astra Agreement provides for Astra also to pay
Centaur up to $6.0 million per year for five years primarily as reimbursement
for the Company's project related research, subject to certain limitations,
and for Astra to bear the costs of its development work. Astra is also
obligated to make payments to Centaur upon achievement of certain milestones,
to reimburse the Company for the manufacture of bulk drug product for use in
clinical testing, and to pay royalties to Centaur on product sales covered by
the Astra Agreement. The milestone payments potentially available to the
Company under the Astra Agreement total $34 million, allocated among 21
separate milestones, of which two milestones representing $3 million in total
had been achieved by the Company as of June 30, 1998. There can be no
assurance that any of the remaining milestones will be achieved by the
Company. Astra received exclusive worldwide marketing rights to any
pharmaceuticals resulting from the collaboration. The Company retains
worldwide manufacturing rights for the active ingredients of the product and
an option to obtain certain co-promotion rights in the United States for five
years. Through June 30, 1998, the Company recognized $26.4 million of revenue
under the Astra Agreement. See "Business--Astra Alliance."
In October 1996, the Company entered into a research and development
collaboration with Lundbeck to jointly commercialize the Company's proprietary
drug compound for Parkinson's disease. Under the Lundbeck Agreement, Lundbeck
and the Company jointly funded research, development, regulatory and other
nonresearch activities. Upon achievement of certain drug development
milestones, Lundbeck was to make milestone payments. From the inception of the
Lundbeck collaboration to June 30, 1998, $6.0 million of revenue has been
recognized, of which $4.3 million has been received. In March 1998, Lundbeck
terminated the Lundbeck Agreement based primarily on a claim that Centaur had
breached the agreement by commencing clinical trials for AIDS dementia, using
the same compound as is being used in the Company's Parkinson's disease
clinical trials, without obtaining consent from Lundbeck. This claim was
disputed by the Company. In July 1998, the Company and Lundbeck entered into
an agreement releasing each party from any further obligations or claims under
the Lundbeck Agreement and providing the Company with an option to use certain
production processes
23
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and other intellectual property of Lundbeck in exchange for certain limited
royalty payments in the event Centaur exercises such option.
The Company expects to continue to incur net operating losses through at
least the next several years as it continues to expand its research and
development programs, including preclinical and clinical studies, and there
can be no assurance that the Company will ever be able to achieve or sustain
profitability in the future. The Company also expects its results of
operations to vary significantly from quarter to quarter. Quarterly operating
results will depend upon many factors, including the timing and amount of
expenses associated with expanding the Company's operations, the timing of
receipt of milestone payments from new and existing collaborative partners, if
any, the conduct and results of clinical trials and the timing of regulatory
approvals, the timing of potential product introductions both in the United
States and internationally and the cost to validate and operate manufacturing
facilities.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1997 and 1998
Substantially all of the Company's revenues have been derived from
collaborative research and development agreements and NIH grants. The Company
records milestone payments received under collaborative agreements as revenue
when the funding party acknowledges that the milestone requirements have been
met. The Company's revenues for the six months ended June 30, 1997 were $6.4
million compared to revenues of $3.6 million for the six months ended June 30,
1998. The 1997 six month revenues primarily consisted of $6.1 million earned
under the Astra and Lundbeck Agreements (including $1.0 million related to the
recognition of milestone revenue) and $337,000 earned under NIH grants. The
1998 six month revenues primarily consisted of $3.6 million earned under the
Astra and Lundbeck Agreements (none of which related to the recognition of
milestone revenue) and $22,000 earned under NIH grants. The decrease in
revenue from the first six months of 1997 to the first six months of 1998 was
primarily due to a $1.6 million reduction in manufacturing, research and
development support and reimbursements as a result of the termination of the
Lundbeck Agreement and a $1.0 million reduction in the recognition of
milestone revenue from Astra. The Company expects that its revenue for 1998
will be significantly less than its revenue for 1997 and that its revenue for
the second half of 1998 will be less than its revenue for the first half of
1998. Such expected reductions would largely be a result of the termination of
the Lundbeck Agreement and the receipt of a milestone payment from Astra in
1997 while none is expected in 1998. See "Risk Factors--Dependence Upon
Collaborators."
Research and development expenses decreased from $7.8 million in the six
months ended June 30, 1997 to $7.0 million for the same period in 1998
primarily due to a $1.0 million decrease in costs associated with Phase I
clinical testing of the Company's Parkinson's disease compound, which study
was completed in late 1997. The Company expects 1998 research and development
expenses to be equal to or less than that incurred in 1997. However, the
Company expects to incur increases in research and development costs in the
future, resulting from the addition of new clinical programs as well as
commencement of more advanced phases of the Company's Parkinson's disease and
AIDS dementia clinical trials. The Company is seeking to enter into additional
collaborative research and development agreements to help fund these
additional expenses. However, there can be no assurance that new collaborators
will be found or that total collaborative research revenue will be sufficient
to offset the anticipated increase in expenses.
General and administrative expenses were $1.5 million in each of the six
month periods ended June 30, 1997 and 1998. The Company expects that general
and administrative expenses will increase in the future as a result of
increased activity by the Company in corporate development, the increased
costs of being a public company and the addition of personnel and facilities
that are needed to support the expected growth in research and development
activities. In addition, if the Company is successful in commercializing one
or more drugs, it will incur substantial general, selling and administrative
expenses in connection with the marketing and sales effort. However, there can
be no assurance that the Company will be able to commercialize any of its drug
candidates.
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<PAGE>
Net interest and other income decreased from approximately $530,000 in the
six months ended June 30, 1997 to approximately $160,000 for the same period
in 1998 due to decreased cash balances and to increased interest costs as a
result of the Company's April 1998 debt financing. The Company expects higher
interest costs in the future as a result of this debt financing.
During the six months ended June 30, 1997 and 1998, the Company recorded
aggregate deferred compensation of $1.2 million and $2.2 million,
respectively, in connection with certain stock options and warrants granted by
the Company in those periods. Of the total deferred compensation,
approximately $179,000 and $614,000 was amortized in the six months ended June
30, 1997 and 1998, respectively. The Company expects noncash amortization of
approximately $615,000 during the remainder of 1998, $1.2 million during 1999,
$1.2 million during 2000 and $693,000 during 2001 related to these options.
The amortization amounts were allocated, and are expected to continue to be
allocated in future periods, primarily to research and development expenses,
and, to a lesser extent, to general and administrative expenses. See Note 7 of
Notes to Financial Statements.
Years Ended December 31, 1995, 1996 and 1997
Revenues were $7.9 million in 1995, $12.7 million in 1996, and $9.6 million
in 1997. These amounts include revenues from the Astra Agreement of $7.6
million in 1995, $8.3 million in 1996 and $7.1 million in 1997, revenues from
the Lundbeck Agreement of $3.7 million in 1996 and $2.1 million in 1997 and
NIH grant revenue of $302,000 in 1995, $682,000 in 1996 and $364,000 in 1997.
Revenues from Astra and Lundbeck decreased in 1997 primarily due to a
reduction in milestone payments earned, partially offset by an increase in
research and development support revenue from Lundbeck. The Company's
milestone revenues have varied significantly during these periods. In 1995,
the Company had no milestone revenue but did recognize $4.0 million earned
under the Astra Agreement for reimbursement of certain previously incurred
Alzheimer's disease and stroke project related costs. In 1996, revenues
included $2.0 million under the Astra Agreement and $3.0 million under the
Lundbeck Agreement related to the recognition of milestone revenue. In 1997,
revenues included recognition of milestone revenue of $1.0 million related to
the Astra Agreement and no milestone revenue related to the Lundbeck
Agreement.
Research and development expenses increased from $5.5 million in 1995 to
$7.9 million in 1996 and $15.6 million in 1997. The increases in research and
development expenses were primarily due to the initiation of Parkinson's
disease clinical trials in 1996 and AIDS dementia clinical trials in 1997 and
increased activity in the Company's other research and development projects.
In connection with these trials and projects, the Company hired additional
research and development personnel, leading to increased payroll and personnel
expenses and associated increased purchases of laboratory supplies and
chemicals and increased equipment depreciation and facilities expenses. In
addition, during 1996 and 1997, the Company expanded its funding of work at
outside research institutions.
General and administrative expenses increased from $1.4 million in 1995 to
$2.3 million in 1996 and decreased slightly to $2.2 million in 1997. The
increase in 1996 was primarily attributable to increased payroll and personnel
expenses as the Company hired additional administrative personnel to support
expanded business activities.
Net interest and other income decreased from $491,000 in 1995 to $362,000 in
1996 as a result of the Company's decreasing average cash and investment
balance which primarily resulted from higher levels of capital expenditures
during 1996. The increase in net interest and other income in 1997 to $1.1
million was due primarily to increases in the Company's cash balances from the
net proceeds of a $16.4 million private placement completed in early 1997.
During the years ended 1996 and 1997, the Company recorded aggregate
deferred compensation of $50,000 and $2.3 million, respectively, in connection
with certain stock options and warrants granted by the Company in those
periods. The Company did not record any deferred compensation in 1995. The
amortization amounts were allocated primarily to research and development
expenses, and, to a lesser extent, general and administrative expenses. See
Note 7 of Notes to Financial Statements.
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<PAGE>
The Company's net income increased from a profit of $1.5 million in 1995 to
a profit of $2.9 million in 1996 due primarily to increased revenue partially
offset by increased operating expenses. The Company's net income decreased to
a net loss of $7.2 million in 1997, primarily as a result of reduced revenue
and increased operating expenses. Net income in 1995 and 1996 largely resulted
from the recognition of signing and milestone revenues under the Company's
collaborative agreements.
As of December 31, 1997, the Company had a federal income tax loss
carryforward of approximately $3.5 million and no California income tax loss
carryforward. The Company's research and development tax credit carryforwards
are approximately $0.1 million for federal income tax purposes. The federal
net operating loss and credit carryforwards will expire in the year 2012 if
not utilized. Utilization of the net operating losses and credit carryforwards
may be subject to substantial annual limitation due to ownership change
provisions of the Internal Revenue Code of 1986 and similar state provisions.
The annual limitation may result in the expiration of net operating losses and
credits before utilization.
LIQUIDITY AND CAPITAL RESOURCES
From inception through June 30, 1998, the Company has financed its
operations primarily through $32.4 million generated from corporate
collaborations, $28.1 million received from private placements of equity
securities, $8.9 million net from a debt financing and $1.5 million from NIH
grant funding. As of June 30, 1998, the Company had approximately $16.7
million in cash and investment securities. The debt bears interest at 14.8%
per annum, is secured by equipment and leasehold rights and improvements, and
is payable in monthly installments through 2002. See Note 2, 7 and 9 of Notes
to Financial Statements.
The Company's operations used $563,000 and $3.0 million of cash in the six
months ended June 30, 1997 and 1998, respectively, and $6.2 million of cash in
the year ended December 31, 1997, and provided cash of $2.5 million and $5.1
million of cash in the years ended December 31, 1995 and 1996, respectively.
These uses and contributions of cash primarily reflect the Company's net
profit or loss for such periods, as adjusted for changes in the Company's
current assets and liabilities, and deferred revenue, over such periods.
The Company's use of cash in investing activities reflects the Company's
purchase of property and equipment, together with purchases and sales of
securities in which the Company has invested its cash prior to use. Additions
to property and equipment were $706,000, $2.7 million, $7.5 million and $2.5
million for the years ended December 31, 1995, 1996 and 1997 and the six
months ended June 30, 1998, respectively. The increased spending in 1996
compared to 1995 primarily reflected the Company's expansion of its laboratory
and research animal facility and the concurrent investment in laboratory
equipment. The further increase in 1997, and the expenditure in the first six
months of 1998, were primarily due to the Company's investment in its Santa
Clara, California manufacturing facility. Of the $13.4 million additions to
property and equipment since the beginning of 1995, the Company invested
approximately $8.6 million in its Santa Clara facility and approximately $4.8
million in its Sunnyvale facility. Although no further spending plans have
been approved by the Company's Board of Directors, the Company anticipates
incurring capital expenditures of at least $20 million over the next several
years to establish a commercial scale pharmaceutical manufacturing plant, and
to expand its research, development, and administrative facilities and
equipment in its Santa Clara facility. The Company plans to fund a significant
portion of such expenditures through loans and government grants, although
there can be no assurance that such funding will be available.
The Company believes that its current resources, together with the estimated
proceeds of this offering, will be sufficient to meet its capital requirements
for the next twelve months. There can be no assurance that the Company will
not require additional funds during this period to continue its research and
development programs and to enter into and sustain preclinical and clinical
testing. The Company anticipates that following this period it will need to
raise substantial additional funds for research, development, expansion of
manufacturing and administrative facilities and other expenses, through equity
or debt financings, research and development financings, collaborative
relationships or otherwise, prior to the commercialization of any of its
products. The Company's capital requirements depend on numerous factors,
including the progress of the Company's research
26
<PAGE>
and development programs, manufacturing activities, revenues or investments
from collaborators, the scope and results of preclinical and clinical testing,
the time and costs involved in obtaining regulatory approval, competing
technological and market developments, changes in the Company's existing
research relationships and the ability of the Company to establish additional
collaborative and other arrangements. There can be no assurance that any
additional funding will be available to the Company or, if available, that it
will be on reasonable terms. Any additional financing may result in dilution
to existing stockholders. If adequate funds are not available, the Company may
be required to significantly curtail its research and development programs,
including clinical trials, or enter into arrangements that may require the
Company to relinquish certain material rights to its potential products on
terms that it might otherwise find unacceptable.
RECENT ACCOUNTING PRONOUNCEMENTS
As of January 1, 1998, the Company adopted the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 130 ("SFAS
130"), Reporting Comprehensive Income. SFAS 130 establishes new rules for the
reporting and display of comprehensive income and its components; however, the
adoption of this Statement had no impact on the Company's results of
operations or financial condition. SFAS 130 requires unrealized gains or
losses on the Company's available-for-sale securities and foreign currency
translation adjustments, which prior to adoption were reported separately in
stockholders' equity, to be included in other comprehensive income. Prior year
financial statements have been reclassified to conform to the requirements of
SFAS 130. During the six months ended June 30, 1997 and 1998, total
comprehensive income amounted to losses of $2,385,000 and $4,782,000,
respectively.
Effective January 1, 1998, the Company adopted the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 131 ("SFAS
131"), Disclosures about Segments of an Enterprise and Related Information.
SFAS 131 superseded SFAS 14, Financial Reporting for Segments of a Business
Enterprise. SFAS 131 establishes standards for the way that public business
enterprises report selected information about operating segments in interim
financial reports. SFAS 131 also establishes standards for related disclosures
about products and services, geographic areas, and major customers. The
adoption of SFAS 131 had no impact on the Company's results of operations,
financial position, or disclosure of segment information at June 30, 1998.
In March 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 132 ("SFAS 132"), Employers' Disclosures
about Pensions and Other Postretirement Benefits. SFAS 132 does not change the
recognition or measurement of pension or postretirement benefit plans, but
revises and standardizes disclosure requirements for pensions and other
postretirement benefits. The adoption of SFAS 132 has no impact on the
Company's results of operations or financial condition.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), Accounting for Derivative
Financial Instruments and for Hedging Activities which provides a
comprehensive and consistent standard for the recognition and measurement of
derivatives and hedging activities. SFAS 133 is effective for years beginning
after June 15, 1999 and is not anticipated to have an impact on the Company's
results of operations or financial condition when adopted.
YEAR 2000 COMPLIANCE
The Company recognizes the need to ensure its operations will not be
adversely impacted by Year 2000 software failures. Software failures due to
processing errors potentially arising from calculations using dates beginning
with the Year 2000 are a known risk. The Company has established procedures
for evaluating and managing the internal risks and costs associated with this
problem and expects to replace software that is not Year 2000 compliant by
mid-1999. The Company does not expect the internal costs of managing the risks
or replacing the software to be material; however, there can be no assurance
that such procedures will be successful or that the date change from 1999 to
2000 will not have a material adverse affect on Centaur's business, operating
results and financial condition. The Company's operations may also be affected
by the ability of third parties, including collaborative partners, dealing
with Centaur to also manage the effect of the year 2000 date change.
27
<PAGE>
BUSINESS
OVERVIEW
Centaur is developing a novel class of small molecule pharmaceutical
compounds, which the Company calls NRTs (nitrone related therapeutics), for
the treatment of diseases involving oxidative stress. Oxidative stress results
from the formation of free radicals and other reactive oxygen species
(collectively referred to as "oxidative stress agents" or "OSA") that can
damage cells. OSA are produced as by-products of the body's normal metabolism
of oxygen and nutrients, as a result of the activation of white blood cells
during inflammation, through the loss and subsequent restoration of blood flow
(ischemia/reperfusion) and due to trauma, radiation and infection. The Company
believes that NRTs may have several mechanisms of action, including
(i) neutralizing OSA, thereby protecting cells from potential damage, (ii)
preventing OSA from inducing genes to produce toxins that can damage or
destroy cells and (iii) slowing the release of cytokines which induce
inflammation.
The Company's initial therapeutic targets are neurodegenerative conditions
such as Parkinson's disease, stroke, AIDS dementia and Alzheimer's disease, in
which the Company believes oxidative stress is a major cause of neuronal
damage. The Company has completed Phase I clinical studies in the United
States of an orally administered NRT for the treatment of Parkinson's disease.
In collaboration with Astra, Phase I clinical studies of an NRT for the
intravenous treatment of stroke have been completed in Sweden, and potential
lead compounds for Alzheimer's disease are being tested. The Company is
currently conducting a Phase I clinical trial in HIV-infected volunteers of an
orally administered NRT for the treatment of AIDS dementia. Centaur believes
that its NRT technology also provides a broad platform for developing
therapeutics for other diseases in which oxidative stress and inflammation are
important, and has established research programs evaluating NRTs to treat
arthritis, myocardial infarction, inflammatory bowel disease, multiple
sclerosis, ophthalmic disorders and other diseases.
TECHNOLOGY
A wide variety of human diseases and disorders have been linked to cell
damage caused by oxidation. These diseases and disorders include acute
conditions associated with the temporary loss of blood flow such as stroke and
myocardial infarction, debilitating chronic diseases such as Parkinson's
disease and Alzheimer's disease, inflammatory conditions such as arthritis,
and the process of aging itself. Oxidation is a chemical reaction in which one
or more electrons are transferred from one molecule to another. Stable
molecules usually have matched pairs of electrons and are unlikely to initiate
oxidation. However, in certain biochemical reactions, free radicals having an
unpaired electron can be created. Free radicals and other OSA tend to be
highly reactive, and their formation can lead to a series of oxidative
reactions that damage and kill cells. This damage can include protein and DNA
oxidation, dangerous increases in intracellular calcium, activation of
damaging proteases and nucleases, and peroxidation of cellular membrane
lipids. The effect of this process of cell damage and death is known as
oxidative stress.
The body generates a variety of OSA as by-products of the body's normal
metabolism of oxygen and nutrients to produce energy. The most common of these
by-products are hydrogen peroxide, superoxide, nitric oxide and the hydroxyl,
perhydroxyl, alkoxyl and peroxyl radicals. The body also generates OSA as part
of the inflammation process in which white blood cells produce OSA to attack
antigens. These OSA may also indirectly attract additional white blood cells,
amplifying the inflammatory response. Under normal circumstances, these
processes are balanced by the body's natural antioxidants, which include
enzymes such as superoxide dismutase, catalase and glutathione peroxidase, and
vitamins such as tocopherol (vitamin E), ascorbate (vitamin C) and b-carotene
(vitamin A), and by the body's cellular repair mechanisms.
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[Description of diagram appearing on page 29 of Preliminary Prospectus: Below
text that reads "OSA Are Produced as By-Products of Normal Metabolism" appears
a diagram of a microscopic view of a mitochondrion, represented by an oval,
cell-like structure with a number of bulbous formations contained within it,
with the text "MITOCHONDRION" appearing below it and the following diagrams and
textual explanations appearing around it (from left to right):
1) above and to the left of the mitochondrion appears the text "FOODSTUFFS",
below which is a diagram of molecules, represented by a series of joined lines
with small bubbles at their intersections, and an arrow pointed inward toward
the surface of the mitochondrion;
2) below and to the left of the mitochondrion appears the text "OXYGEN", above
which is a diagram of numerous bubbles and an arrow pointed inward towards the
surface of the mitochondrion;
3) above the mitochondrion appears the text "OXIDATIVE STRESS AGENTS", below
which is a diagram of multiple electrical energy bolts emanating from a crack
in the surface in the mitochondrion with the text "H2O2", "OH" and "O2-"
appearing among the electrical energy bolts and two arrows pointed outward from
the surface of the mitochondrion;
4) above and to the right of the mitochondrion appears the text "CARBON
DIOXIDE", below which is a diagram of numerous bubbles emanating from the
surface of the mitochondrion and an arrow pointed outward from the surface of
the mitochondrion;
5) to the right of the mitochondrion appears an arrow pointing outward from the
surface of the mitochondrion with the text "CHEMICAL ENERGY (ATP)" alongside
the arrow; and
6) below and to the right of the mitochondrion appears the text "WATER", above
which is a diagram of numerous droplets emanating from the surface of the
mitochondrion and an arrow pointed outward from the surface of the
mitochondrion.]
As people age, OSA production tends to increase while the body's natural
antioxidant and cellular repair mechanisms decline. Accordingly, cell damage
caused by oxidative stress tends to increase with age. This effect is
especially damaging in the brain due to its high metabolic rate, the relatively
low level of antioxidant protection in the brain, and the inability of neurons
to regenerate. One of the consequences of this higher level of oxidative stress
is that a significant percentage of the enzymes critical to normal neuron
function may become oxidized, increasing susceptibility to debilitating and
potentially fatal degenerative diseases such as Parkinson's disease and
Alzheimer's disease. In addition, age associated changes may bring about
increases in inflammation-causing cytokines and other cellular mediators in the
brain that may induce certain genes to produce higher levels of neuronal
toxins. These neurotoxins may result in older individuals becoming more
susceptible to sudden increases in oxidative stress caused by acute events such
as stroke and trauma.
OSA are also created as a result of ischemia/reperfusion, trauma, radiation
and infection. In acute conditions such as stroke and myocardial infarction,
the reperfusion of oxygenated blood can induce a cascade of OSA that overwhelms
natural antioxidant and cellular repair mechanisms. The resulting tissue injury
can occur in several stages. Initially, after the tissue is reoxygenated, there
is a rapid rise in OSA that cause oxidative damage. Subsequently, these early
OSA can create additional OSA and initiate cellular signaling processes that
induce genes to produce higher levels of inflammation-causing cytokines and
toxins such as nitric oxide. The cascade of damage can last for many hours or
days. In chronic conditions such as Alzheimer's disease and arthritis,
inflammation may exacerbate oxidative stress, causing further tissue damage.
29
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[Description of diagram appearing on page 30 of Preliminary Prospectus: Below
text that reads "As Part of the Inflammation Process, White Cells Can Leave
Blood Vessels and Release OSA" appears a diagram of a joint between the meeting
of two bones, with lines from the center of the joint extending to two separate
diagrams to the right and left of the diagram of the joint as follows:
1) Left diagram: below the text "HEALTHY JOINT" appears a magnified, cross-
sectional view of the joint with a depiction of oval cells flowing through a
tube, representing a cross-sectional view of a capillary, inside the joint
capsule. The joint (represented by elongated cells which are connected to the
bone) and bone (represented by the top and bottom border of the diagram) are
not damaged.
2) Right diagram: below the text "INFLAMED JOINT" appears a magnified, cross-
sectional view of the joint with a depiction of numerous oval (inflammatory)
cells inside and around the capillary within the joint capsule emanating
electrical energy bolts (OSA) into the damaged joint (represented by elongated
cells which are disconnected from the bone and contain holes) and damaged bone
(represented by the top and bottom border of the diagram which contains
numerous cracks).]
Centaur's technology is based on a proprietary library of small molecule
pharmaceutical compounds, known as NRTs. This technology emerged from research
begun in the 1980's by the Company's scientific founders, Dr. John Carney, then
at the University of Oklahoma, and Dr. Robert Floyd at the Oklahoma Medical
Research Foundation, with a compound known as PBN. PBN is a small organic
molecule that neutralizes OSA and has been shown to reduce cellular damage
resulting from oxidative stress and inflammation in animal models. Centaur has
developed a library of proprietary derivatives which the Company believes
improve upon the properties of PBN. This drug discovery process has involved
the systematic preclinical screening and modification of compounds to improve
their safety, efficacy and pharmacokinetic profile using a variety of screening
methods and disease models.
The Company believes that NRTs act to reestablish the balance between OSA
production and the body's oxidation defense mechanisms. The Company believes
that NRTs may have several mechanisms of action, including (i) neutralizing
OSA, thereby protecting cells from potential damage, (ii) preventing OSA from
inducing genes to produce toxins that can damage or destroy cells and (iii)
slowing the release of cytokines which cause inflammation. These properties may
make it possible to treat acute conditions, such as stroke, by administering
NRTs several hours after the initial insult. In such circumstances, NRTs may be
able to stop the escalating cascade of oxidative damage, thus slowing the
production of additional OSA and toxins and reducing inflammation. The Company
believes that NRTs may also be effective if given chronically for the treatment
of certain degenerative and inflammatory conditions. In addition to possibly
reestablishing the balance between OSA production and the body's oxidation
defense mechanisms, chronic administration of NRTs may suppress the production
of toxins and cytotoxic gene expression, thus rendering cells less susceptible
to age-associated oxidative damage.
Centaur views both acute and chronic conditions involving oxidative stress as
attractive pharmaceutical development targets. Most acute conditions require
drugs that (i) can be administered through injection or intravenous solution in
the ambulance or hospital emergency room, (ii) are absorbed quickly to achieve
rapid effectiveness and (iii) are swiftly eliminated by the body after they
have had their intended effect. Chronic conditions require drugs that (i) are
orally active so that they can be conveniently administered over a long period
of treatment and (ii) have a relatively long period of elimination to allow
daily dosing.
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The Company believes that its proprietary NRTs have the following
characteristics that may make them attractive as pharmaceutical candidates:
. ANTIOXIDANT ACTIVITY. In in vitro tests and animal models, the Company's
NRTs neutralize pathological OSA without interfering with normal
metabolism.
. ANTI-INFLAMMATORY ACTIVITY. NRTs have demonstrated anti-inflammatory
activity in both in vitro tests and animal models.
. TOXICITY PROFILE. The Company has developed NRTs that have low toxicity
in in vivo preclinical studies at dosage levels well above those that
have demonstrated therapeutic effects in animal models of disease. NRTs
have been administered to human volunteers in Phase I clinical studies in
Parkinson's disease and acute stroke and no treatment limiting side
effects were observed.
. ORAL OR INTRAVENOUS ADMINISTRATION. NRTs have been engineered for either
oral or intravenous administration depending on the target indication.
. MANUFACTURABILITY. Because NRTs are small organic compounds, they are
relatively easy and inexpensive to manufacture compared to larger
molecules such as polypeptides and proteins.
. COMPATIBILITY WITH EXISTING THERAPEUTICS. Based on limited testing to
date, the Company has observed little or no negative interaction between
its drugs and existing therapies, and believes that most NRT drug
candidates will prove to be compatible and administrable with existing
therapeutics.
BUSINESS STRATEGY
The Company plans to apply its proprietary NRT technology to develop new
treatments for a broad range of acute and chronic conditions associated with
oxidative stress. Important elements of the Company's strategy include the
following:
. TARGET LARGE MARKETS WITH UNMET MEDICAL NEEDS. In selecting therapeutic
opportunities, Centaur targets large pharmaceutical markets that are not
adequately served by existing therapies. The Company initially focused on
neurodegenerative diseases due to their substantial unmet market needs
and the brain's high degree of vulnerability to oxidative stress. More
recently, the Company has expanded its drug discovery efforts to include
applications outside the brain where oxidative stress and inflammation
are believed to play major roles, such as arthritis, myocardial
infarction, inflammatory bowel disease, multiple sclerosis and ophthalmic
disorders.
. EMPHASIZE DRUG DISCOVERY AND EARLY STAGE DEVELOPMENT; PARTNER ACTIVITIES
REQUIRING SUBSTANTIAL RESOURCES. Centaur emphasizes its research and
early stage development capabilities, focusing on the discovery and
screening of new drug candidates and the development of such candidates
through early stage clinical trials. For later stage, larger and more
complex clinical trials, and for worldwide marketing and distribution,
Centaur generally intends to seek strategic collaborations with large
pharmaceutical companies, as it has with Astra for stroke and Alzheimer's
disease.
. PROTECT PROPRIETARY POSITION WITH BROAD PATENT COVERAGE. The Company is
building a strong domestic and international patent position protecting
its NRT technology. Centaur's proprietary position includes ownership of,
or license rights to, 24 United States patents, 23 United States patent
applications, 37 foreign patents and 137 foreign patent applications
covering NRTs and their use in oxidative tissue damage, degenerative
diseases, inflammatory conditions and the aging process. The Company has
an active program of patent application and prosecution to protect and
expand its proprietary position in NRT-based compounds and therapies.
. EXPAND THE NRT PLATFORM. Centaur has established the capability to
rapidly synthesize and evaluate new NRT compounds. The Company focuses on
candidate drugs that are highly bioavailable, active in animal models of
the target diseases and relatively easy to manufacture.
. MAXIMIZE VALUE ADDED AND KNOW HOW THROUGH INTERNAL MANUFACTURING. Because
NRTs can be produced by relatively simple manufacturing processes at
relatively moderate cost, Centaur has established, and is currently
expanding, an internal manufacturing capability. This capability is
expected to provide the Company with the ability to produce the volume of
product needed through the clinical trial process and
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early stage commercial sales, and positions the Company to realize
manufacturing revenues. It also permits the Company to gain the knowledge
and insights that come from developing and implementing production methods
and affords the Company the potential to enhance its proprietary position.
PRODUCT DEVELOPMENT PROGRAMS
The table below summarizes the status of the Company's principal product
development programs:
<TABLE>
<CAPTION>
COMPOUND COMMERCIALIZATION
INDICATION NAME STATUS(/1/) RIGHTS
---------- -------- ----------- -----------------
<S> <C> <C> <C>
Parkinson's
disease CPI-1189 Initiating Phase IIa Centaur
Stroke CPI-22(/2/) Initiating Phase IIa(/3/) Astra/Centaur(/4/)
AIDS demen-
tia CPI-1189 Phase I Centaur
Alzheimer's
disease N/A Preclinical Astra/Centaur(/4/)
Arthritis N/A Preclinical Centaur
</TABLE>
--------
(1) "Initiating Phase IIa" means that the Company has completed Phase I
clinical trials of the compound and is preparing to commence a
controlled clinical trial in patients with the targeted disease for
purposes of testing safety and evaluating preliminary efficacy
information. "Phase I" means that the FDA has approved the Company's
IND and Phase I clinical trials have begun to assess the safety of the
compound in humans. "Preclinical" refers to projects that have
progressed to the point of intensive screening designed to select a
lead compound from potential candidates. See "--Government Regulation."
(2) This compound is referred to as NXY-059 by Astra.
(3) Performed in Sweden under the Swedish equivalent of an IND. An FDA IND
was not submitted. Trial results are expected to be used to support
regulatory filings in the United States and other countries.
(4) Centaur's commercialization rights consist of worldwide manufacturing
rights and an option to acquire United States co-promotion rights. See
"--Astra Alliance."
PARKINSON'S DISEASE PROGRAM
Parkinson's disease is a degenerative neurological disorder caused by a
shortage of the neurotransmitter dopamine, which is essential to movement
control. The disease results from the gradual depletion of dopamine producing
neurons located in the substantia nigra region of the brain. Parkinson's
disease symptoms generally begin later in life after roughly 80% of the cells
in the substantia nigra stop functioning properly. As substantia nigra cells
die, dopamine levels decline, and Parkinson's patients experience increasing
difficulty initiating and controlling movement. Symptoms of Parkinson's
disease include tremors, slowed movement, muscle rigidity and decreased range
of motion. Impaired motor control is often accompanied by depression and/or
dementia. Symptoms become progressively worse until the patient is totally
incapacitated, typically over a 10 to 15 year period. If the patient does not
die from other causes, Parkinson's disease eventually leads to death from loss
of respiratory muscle control.
Although the exact cause of Parkinson's disease is unknown, the disease is
thought to arise from a combination of genetic susceptibility, long term
exposure to endogenous and exogenous environmental toxins and
neuroinflammation. A growing body of evidence suggests that oxidative stress
also contributes to Parkinson's disease progression. For example, human post-
mortem substantia nigra samples show higher levels of oxidative damage in
Parkinson's patients when compared to age-matched controls.
Therapeutics currently available and many products under development treat
Parkinson's disease symptoms through dopamine replacement or by prolonging the
effectiveness of the dopamine produced by the brain. These drugs elevate
dopamine levels in the brain, but they do not address the underlying causes of
Parkinson's disease. Consequently, they provide only symptomatic relief, and,
as the disease progresses, they tend to lose their effectiveness. A number of
companies are developing alternative therapeutic approaches. These approaches
include the use of neuroimmunophilins and other factors to stimulate nerve
growth, compounds that promote neurotransmitter release and dopaminergic cell
transplantation. Centaur believes that NRTs may prove effective
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in treating Parkinson's disease by protecting dopamine producing cells from
oxidative stress. See "Risk Factor--Competition; Rapid Technological Change."
Centaur is developing an orally administered, neuroprotective NRT designated
CPI-1189 to treat patients with Parkinson's disease. The Company has tested
this compound in a number of preclinical models of neuroinflammation and
Parkinson's disease, and the compound has provided significant protection to
dopamine producing neurons. Drug distribution studies in animal models have
demonstrated excellent brain penetration while producing little toxicity at
effective chronic doses. The Company believes that CPI-1189's combination of
pharmacologic efficacy in established animal models of Parkinson's disease and
excellent pharmacokinetics suggest that it may prove effective in treating
Parkinson's disease symptoms, including both motor dysfunction and mental
deficiency.
Centaur has completed Phase I clinical studies of CPI-1189 in the United
States. The Phase I trial was designed to assess the compound's safety and
pharmacokinetics in healthy volunteers. In studies involving over 180
subjects, no treatment-limiting side effects were observed. The Company plans
to commence a Phase IIa clinical trial in 36 Parkinson's disease patients by
the end of 1998 for the purpose of testing safety and evaluating preliminary
efficacy information.
In October 1996, the Company entered into a research and development
agreement with Lundbeck to jointly develop and commercialize CPI-1189 for
Parkinson's disease. In March 1998, Lundbeck terminated the agreement. based
primarily on a claim that Centaur had breached the agreement by commencing
clinical trials for AIDS dementia, using the same compound as is being used in
the Company's Parkinson's disease clinical trials, without obtaining consent
from Lundbeck. This claim was disputed by the Company. In July 1998, the
Company and Lundbeck entered into an agreement releasing each party from any
further obligations or claims under the Lundbeck Agreement and providing the
Company with an option to use certain production processes and other
intellectual property of Lundbeck in exchange for certain limited royalty
payments in the event Centaur exercises such option.
There are over 500,000 Parkinson's disease cases in the United States and
over four million worldwide. The onset of disease symptoms usually occurs
between ages 50 and 65, although about 15% of patients develop symptoms in
their 30s and 40s. The Company expects the number of Parkinson's disease cases
to continue to grow due to demographic trends and the possible earlier
diagnosis of the disease.
STROKE PROGRAM
Stroke is classified into two major subtypes, ischemic and hemorrhagic.
Ischemic stroke results when blood flow to the brain is interrupted by
cerebral thrombosis or embolism. Neurons begin to die from loss of oxygen and
nutrients when the brain is deprived of blood for more than a few minutes.
When blood flow is restored to the affected area, either through clearing of
the obstruction or through collateral blood flow, reperfusion of oxygenated
blood induces a cascade of OSA that can cause cell damage and death and
trigger an inflammatory response. This process can continue for many hours
following reperfusion, resulting in a spreading region of damaged and dead
brain cells. Patients may suffer loss of speech, muscle control and mental
capacity and may become paralyzed, comatose or die depending on which region
of the brain is impaired and the magnitude of the stroke. Hemorrhagic stroke
results from the rupture of vessels supplying blood to the brain. In
hemorrhagic stroke, the release of hemoglobin containing iron into the brain
also propagates damaging OSA, further compounding the damage caused by loss of
blood flow and reperfusion. As a result, hemorrhagic strokes are often more
severe than ischemic strokes.
Until recently, stroke was considered untreatable. The condition was
monitored until the patient stabilized and rehabilitation was begun. In 1996,
a thrombolytic agent, tissue plasminogen activator (tPA), was approved as a
therapy for ischemic stroke in the United States. The use of tPA is intended
to restore blood flow to the brain as quickly as possible. While early
reperfusion has proven beneficial in ischemic stroke, it exposes tissue to
oxygenated blood, which the Company believes can lead to a cascade of damaging
OSA. Other approaches under development by other companies to treat stroke
utilize neuroprotective agents such as N-methyl-D-aspartate ("NMDA") ion-
channel blockers, NMDA-receptor antagonists, calcium channel blockers and
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substrates for rebuilding damaged cells. The effectiveness of most of these
approaches is limited by the short window of time following the stroke during
which they must be administered, and some have serious side effects. In
addition, a number of prophylactic therapies for stroke are currently
available, such as surgery to enlarge narrowed blood vessels and the regular
use of anticlotting agents such as aspirin and ticlopidine. See "Risk
Factors--Competition; Rapid Technological Change."
Centaur believes that NRTs may prove effective in treating stroke by
neutralizing damaging OSA, and through other possible mechanisms of action,
thereby protecting nerve cells from oxidative stress associated with stroke.
Data from preclinical studies suggest the therapeutic window of activity for
NRTs may be significantly longer than for most other neuroprotective agents.
This would be a major advantage in a disease in which patients may not arrive
at the hospital for treatment for several hours. Centaur also believes that it
may be possible to develop an orally administered drug for prophylactic use by
individuals considered at risk for stroke.
Centaur has developed an NRT designated CPI-22 for the intravenous treatment
of stroke in collaboration with Astra. Preclinical studies in animal models
indicate that the compound reduced neurological and behavioral consequences of
permanent and transient ischemias. Neuronal protection has been demonstrated
in both the core of the brain lesion and the expanding penumbral zone, even
though the compound does not appear to penetrate the blood/brain barrier in
significant quantities. Based on these animal studies, the Company believes
that CPI-22 may be efficacious in humans when used up to six or more hours
post-stroke. This compound yielded dose related neuronal protection at doses
substantially below those that show any toxicity in animal models. Pursuant to
the Astra Agreement, Astra is to fund certain research, product development
and clinical studies of the drug candidate. Astra and Centaur have completed
Phase I clinical studies in Sweden under the Swedish equivalent of an IND and
no treatment-limiting side effects were observed. The Company and Astra plan
to commence a Phase IIa clinical trial in 150 stroke patients in Europe by the
end of 1998 for the purpose of testing safety and evaluating preliminary
efficacy information. See "--Astra Alliance" and "Risk Factors--Dependence
Upon Collaborators."
Stroke is the third leading cause of death and the most common cause of
adult disability in the United States. There are approximately 500,000 new
stroke victims each year in the United States. Nearly 150,000 of these victims
die and over 100,000 suffer severe, permanent disability. Of the more than two
million stroke survivors in the United States, two-thirds have some type of
long term neurologic disability.
AIDS DEMENTIA PROGRAM
AIDS dementia refers to the debilitating neurological and cognitive
impairments frequently associated with acquired immune deficiency syndrome
(AIDS). Symptoms of this condition include loss of memory, loss of motor
control and behavioral abnormalities. The Company believes that AIDS dementia
is caused by toxins and brain inflammation produced as a result of HIV
infection. These toxins can damage or destroy neurons through oxidative
stress. Approximately 10% of individuals with AIDS dementia develop a
condition resembling Parkinson's disease.
No effective treatment for AIDS dementia currently exists. Antiretroviral
agents are sometimes used, but treatment response is frequently
unsatisfactory, short lived or poorly tolerated. The Company believes that two
compounds targeted for AIDS dementia are in clinical trials.
Centaur believes that CPI-1189 could delay the occurrence and/or slow the
progression of AIDS dementia. In in vitro tests using human brain cells, the
compound has provided significant protection to cells from injury caused by
toxins implicated in AIDS dementia. Further, CPI-1189 has provided significant
protection to neurons in in vivo animal models of AIDS dementia. CPI-1189 does
not appear to increase the viability of HIV, or suppress immune system
function, based on in vitro and standard rodent model tests, respectively. The
Company believes that this compound may also be suitable for prophylactic use
by HIV infected persons.
Centaur initiated an AIDS dementia Phase I clinical trial of CPI-1189 in the
United States in October 1997 in HIV infected individuals undergoing treatment
with reverse transcriptase and protease inhibitor therapies. This trial is
currently in progress. No treatment limiting side effects were observed when
CPI-1189 was tested in the
34
<PAGE>
Company's Parkinson's disease Phase I clinical trials. See "--Parkinson's
Disease Program." The Company plans to commence a Phase II clinical trial by
the end of 1998 for the purpose of testing safety and evaluating efficacy
information in AIDS dementia patients.
Although the Company generally intends to attempt to establish
collaborations with larger pharmaceutical companies to develop and market its
drug candidates, it may not need to do so to develop CPI-1189 for AIDS
dementia. This is based on the Company's belief that (i) the AIDS dementia
market can be reached by a relatively small sales force, because a significant
portion of the patient population tends to actively seek and adopt new
treatments, and (ii) AIDS dementia drug candidates may qualify for faster than
normal regulatory consideration if clinical results are supportive. These
factors could allow the Company to commercialize CPI-1189 for AIDS dementia
without requiring the larger resources of a major pharmaceutical company. See
"Risk Factors--No Assurance of FDA Approval; Comprehensive Government
Regulation."
In the United States, over 750,000 individuals are infected with HIV,
approximately one-third of which have AIDS. Historically, approximately one-
third of adults and one-half of children with AIDS developed neurological
complications associated with AIDS dementia. New AIDS therapies, such as the
use of protease inhibitors in combination with traditional reverse
transcriptase inhibitors, appear to be effective in extending the life span of
AIDS patients. It is not known whether the development of these new therapies
will affect the prevalence of AIDS dementia, and if so, whether the effect
will be to increase the prevalence of the disease, due to the increase in the
life span of AIDS patients, or to decrease the prevalence of the disease due
to the effect of the new therapies.
ALZHEIMER'S DISEASE PROGRAM
Alzheimer's disease is a debilitating neurodegenerative disease which causes
progressive loss of memory, ability to communicate, time and space
orientation, and abstract thinking skills. Anxiety, depression and other
changes in personality are also common symptoms of the disease. Later stage
symptoms include loss of speech, loss of bladder control and total dependence
on caregivers. If patients do not die of other causes during the course of the
disease, Alzheimer's disease ultimately proves fatal. Several genetic factors
have been identified as risk factors for the onset of Alzheimer's disease.
Many hypotheses for the causes of neurodegeneration in Alzheimer's disease
have been proposed by medical researchers. Recent studies suggest that
oxidative stress and neuroinflammation may be important to the onset and
progression of Alzheimer's disease.
Alzheimer's disease is distinguished from other dementias by the presence of
b-amyloid plaques and neurofibrillary tangles in the brain. When b-amyloid
comes into contact with brain tissue, it spontaneously generates OSA and
causes the formation of advanced glycation end products which also produce
OSA. Clinical studies suggest that regular use of vitamin E, a naturally
occurring antioxidant, slows the progression of Alzheimer's disease. Brain
inflammation occurs around the senile plaques characteristic of Alzheimer's
disease, and inflammatory cells and cytokines are typically found in brain
regions affected by Alzheimer's disease. Retrospective studies indicate that
nonsteroidal anti-inflammatory drug users have a lower incidence of
Alzheimer's disease. Since NRTs have both antioxidant and anti-inflammatory
effects, the Company believes that NRTs may prove to be effective in treating
Alzheimer's disease.
No effective treatment to significantly slow the progression of Alzheimer's
disease is currently available. Treatments on the market and many of those
under development focus on increasing the level of the neurotransmitter
acetylcholine in the brain. The only FDA approved pharmaceuticals to treat
Alzheimer's disease enhance acetylcholine activity by inhibiting
cholinesterase, an enzyme responsible for breaking down acetylcholine in the
brain. These medications provide only limited symptomatic relief, and their
side effects can be significant. A number of other products for the treatment
of Alzheimer's disease are in clinical trials being conducted by other
companies. See "Risk Factors--Competition; Rapid Technological Change."
Since there are no universally accepted models for Alzheimer's disease,
Centaur utilizes a battery of tests looking for candidate drugs that succeed
in a variety of disease models. Initial screens target compounds that
35
<PAGE>
prevent the death of cultured brain neurons caused by inflammatory mediators.
Later stage screens look for prevention of age-related decline in cognitive
function in mice and other animals. Centaur's objective has been to identify
safe compounds that protect brain function. The Astra Agreement covers the
development of therapeutics for the treatment of Alzheimer's disease. Several
promising drug candidates have been identified, and further preclinical drug
optimization is underway. See "--Astra Alliance" and "Risk Factors--Dependence
Upon Collaborators."
Alzheimer's disease affects four million people in the United States. The
incidence of Alzheimer's disease increases steadily with age, affecting
approximately five percent of individuals aged 65 and over 40% of people at
age 80. The elderly are the fastest growing population segment in the United
States.
ARTHRITIS PROGRAM
Arthritis is a chronic inflammatory disease of the joints. Although there
are many forms of arthritis, most patients suffer from either rheumatoid
arthritis or osteoarthritis. Rheumatoid arthritis most often affects the
joints of the hands, wrists or feet. It results in thickening and inflammation
of the synovial membranes, and causes progressive damage to the joint capsule,
cartilage and bone. The onset of rheumatoid arthritis is usually gradual,
typically beginning between the ages of 25 and 50. The progress of the disease
is unpredictable, with up to 50% of patients developing severe functional
incapacity within ten years of initial diagnosis of the disease.
Osteoarthritis is an age associated condition that results in joint pain and
stiffness. The Company believes that oxidative stress plays an important role
in the pathophysiology of both forms of arthritis.
Most current arthritis medications, including aspirin and other nonsteroidal
anti-inflammatory drugs, decrease pain and swelling but do not prevent
cartilage and bone destruction. Therapeutics for the treatment of joint
destruction in arthritis include immunosuppressants, gold salts and anti-
mitotics, all of which can produce significant side effects, such as
myelosuppression, renal toxicity and gastric ulceration. Many pharmaceutical
and biotechnology firms have programs aimed at developing new arthritis
therapeutics. Several of the new therapeutics under development are proteins
intended to neutralize the effects of inflammatory cytokines such as tumor
necrosis factor. One such therapeutic appears to be nearing FDA approval,
although it appears that such approval will, at least initially, be limited to
patients who have failed to respond to other anti-arthritic drugs. See "Risk
Factors--Competition; Rapid Technological Change."
Based on preclinical studies in established animal models, Centaur believes
that its NRTs could prove to be efficacious therapeutics that reduce swelling
and slow disease progression. Lead compounds have been identified and research
toward the selection of a clinical candidate is underway. See "Risk Factors--
Uncertainty of Preclinical and Clinical Trials."
It is estimated that approximately 2 million people in the United States
have rheumatoid arthritis and over 15 million people in the United States,
mostly over 65 years old, have osteoarthritis.
EXPLORATORY RESEARCH PROGRAMS
Centaur is also pursuing feasibility testing of proprietary NRTs as
therapeutics for other indications in which oxidative stress may be a factor,
including myocardial infarction, inflammatory bowel disease, traumatic brain
disease, ophthalmic disorders, multiple sclerosis and other diseases. These
programs may receive increased funding and personnel should promising data
result from the preliminary research underway at Centaur and in the
laboratories of the Company's sponsored academic collaborators.
In addition to these exploratory research programs, Centaur periodically
evaluates other potential commercial applications of its NRT technology. The
Company believes that many of the wide range of diseases involving oxidative
damage may be treatable with compounds developed using the Company's
technology.
In evaluating new product opportunities, the Company often leverages the
efforts of its scientific staff with assistance from outside consultants,
scientific advisory board members and contract research organizations. This
enables the Company to maintain a relatively small internal staff while
evaluating a significant number of product
36
<PAGE>
opportunities. The Company also utilizes NIH Small Business Innovative
Research grants to fund exploratory research.
ASTRA ALLIANCE
In June 1995, Centaur entered into an agreement with Astra for the research,
development and marketing of certain drugs to treat Alzheimer's disease,
stroke, traumatic brain injury and multi-infarct dementia (the "Astra Field").
Centaur is primarily responsible for research work under the Astra agreement,
and Astra is primarily responsible for development work, including clinical
trials.
Astra paid Centaur $4 million upon execution of the Astra Agreement as
reimbursement for certain previously incurred costs. The Astra Agreement
provides for Astra also to pay up to $6.0 million per year for five years to
fund Centaur's research and development work, subject to certain limitations,
and for Astra to bear the costs of its development work. Astra is also
obligated to make milestone payments to Centaur upon achievement of
development milestones and to pay royalties to Centaur on product sales
covered by the Astra Agreement. The milestone payments potentially available
to the Company under the Astra Agreement total $34 million, allocated among 21
separate milestones, of which two milestones representing $3 million in total
had been achieved by the Company as of June 30, 1998. There can be no
assurance that any of the remaining milestones will be achieved by the
Company.
Astra was granted exclusive worldwide marketing rights to any products
resulting from the alliance. Centaur retains worldwide manufacturing rights
for the active ingredient of the products, and Astra has agreed to buy all of
its requirements of such substance from Centaur, subject to certain exceptions
intended to permit Astra to maintain a second source of supply. Centaur also
has an option to obtain co-promotion rights in the United States for five
years for products covered by the Astra Agreement. Centaur and Astra have
agreed to work exclusively with each other in the Astra Field, subject to
certain limited exceptions. In addition, Centaur has provided Astra with a
right of first negotiation to enter into agreements with Centaur in other
diseases of the central nervous system and has agreed not to commercialize
certain compounds covered by the Astra Agreement outside of the Astra Field.
The Astra Agreement expires on the later of (i) 15 years after the first
commercial sale of a licensed product, or (ii) the expiration of applicable
patents, on a country-by-country basis. Additionally, Astra can terminate the
agreement either in whole or in part, without cause, upon 12 months notice.
Astra may also terminate its research support obligations, and its obligation
to purchase products from Centaur, upon the acquisition by a third party
engaged in the manufacture and/or sale of pharmaceutical products of more than
30% of the Company's voting capital stock.
The Company's strategy for the development, clinical trials and
commercialization of its products includes maintaining its collaborative
arrangement with Astra and establishing additional collaborations with
partners, licensors, licensees and others. To the extent that the Company is
unable to maintain or establish such collaborative arrangements, the Company's
research, development efforts and business would be adversely affected. See
"Risk Factors--Dependence Upon Collaborators."
PATENTS, TRADE SECRETS AND LICENSES
Protection of the Company's proprietary rights is important for the Company
to maintain its competitive position. The Company actively seeks, when
appropriate, protection for its products and proprietary information by means
of United States and foreign patents. In addition, the Company relies upon
trade secrets and contractual arrangements to protect certain of its
proprietary information and products.
The Company owns 4 United States patents, 15 United States patent
applications, 2 foreign patents and 81 foreign patent applications related to
NRTs and their use as pharmaceuticals. The Company also holds exclusive
37
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license rights to 20 United States patents, 8 United States patent
applications, 35 foreign patents and 56 foreign patent applications related to
NRTs and their use as pharmaceuticals.
Several of the patents and patent applications licensed from UKRF and OMRF,
and certain related technology, were licensed pursuant to an agreement between
the Company and UKRF and OMRF in 1992 (the "UKRF/OMRF Agreement"). The
underlying technology was primarily developed by the Company's founders, Dr.
John Carney, at the Universities of Oklahoma and Kentucky, and Dr. Robert
Floyd, at OMRF. The UKRF/OMRF Agreement grants Centaur exclusive worldwide
rights to the covered patents and technology, subject to certain very limited
exceptions. In exchange, Centaur has agreed to pay certain royalties and
sublicense fees to the licensors, as well as pay the patent costs related to
the subject technology. The UKRF/OMRF Agreement requires Centaur to make
minimum payments of $25,000 per year until an NDA is approved by the FDA, and
$100,000 per year thereafter. In connection with the UKRF/OMRF Agreement, Drs.
Carney and Floyd transferred 200,000 shares of Centaur Common Stock to UKRF
and OMRF, respectively.
Centaur is obligated by the UKRF/OMRF Agreement to use reasonable efforts to
bring one or more licensed products to market. The UKRF/OMRF Agreement expires
on the later of July 2007 or the expiration of the last to expire patent. UKRF
and OMRF have entered into a similar license with Astra that may be used only
if the UKRF/OMRF Agreement or Astra Agreement is terminated under certain
conditions, including breach by Centaur.
In January 1998, the Company entered into an additional license agreement
with OMRF pursuant to which the Company received an exclusive worldwide
license to certain additional patents and technology, subject to certain very
limited exceptions. In exchange, the Company paid a license initiation fee to
OMRF and agreed to pay certain royalties. The agreement requires Centaur to
make minimum royalty payments of $10,000 per year, as well as certain
milestone payments. The Company is obligated to use reasonable efforts to
bring one or more licensed products to market. The agreement expires on the
later of January 1, 2013 or the expiration of the last to expire patent.
Much of the Company's technology and many of its processes are dependent
upon the knowledge, experience and skills of its scientific and technical
personnel. To protect its rights to its proprietary know-how and technology,
the Company requires all employees, consultants, advisors and collaborators to
enter into confidentiality agreements that prohibit the disclosure of
confidential information to anyone outside the Company. These agreements
generally require disclosure and assignment to the Company of ideas,
developments, discoveries and inventions made by employees, consultants,
advisors and collaborators. There can be no assurance that these agreements
will effectively prevent disclosure of the Company's confidential information
or will provide meaningful protection for the Company's confidential
information if there is unauthorized use or disclosure. Furthermore, in the
absence of patent protection, the Company's business may be adversely affected
by competitors who independently develop substantially equivalent technology.
See "Risk Factors--Dependence on Patents and Proprietary Technology".
The Company does not currently have any registered trademarks or tradenames.
The Company has entered into an agreement with Chiron Corporation ("Chiron")
whereby Chiron agreed to not challenge the Company's use of "Centaur" in the
pharmaceutical field and the Company agreed to not challenge Chiron's use of
"Centaur" in the medical diagnostics field. The Company intends to apply for
trademark and tradename registrations as appropriate.
CUTANIX--SKIN CARE AFFILIATE
Because of the antioxidative and anti-inflammatory properties of NRT
compounds, the Company believes that these compounds could be effective in
treating various diseases and disorders of the skin, including dermatitis,
psoriasis and photoaging. In January 1998, the Company exclusively licensed
all of its current and future technology for the field of dermatology,
cosmetics and other skin care applications to a newly formed company, Cutanix
Corporation ("Cutanix"), which has undertaken a research program to identify
compounds which could be developed into dermatological drugs or cosmetics. The
license agreement provides that either the
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Company or Cutanix may obtain the exclusive right to use Company compounds,
with certain exceptions, by agreeing to take certain actions to develop the
compound. Accordingly, Cutanix could obtain exclusive rights to a compound
that the Company might otherwise choose to develop. Centaur currently owns 63%
of the outstanding stock of Cutanix, and the management and advisors of
Cutanix own the remaining stock. Centaur and the two other principal
stockholders of Cutanix have agreed to maintain a three person Board of
Directors with one representative of each on the Board, subject to certain
limited exceptions, and have also agreed that certain major corporate actions
will require the approval of 75% of the members of the Board of Directors, all
for a period of ten years. Centaur has the exclusive right to supply any NRT
active ingredients for commercial sale by Cutanix, (subject to certain rights
of each party to terminate the non-exclusivity) at a cost-based purchase
price. Centaur has committed to provide up to $250,000 in cash and services to
Cutanix. The Company and Cutanix also entered into a services and supply
agreement under which the Company agreed to provide certain administrative and
other services to Cutanix at cost. Cutanix is currently in the process of
raising capital in a private equity financing to fund the continued
development of its lead compounds, although there can be no assurance that
Cutanix will be able to consummate this financing. The Company expects to
convert its outstanding loans to Cutanix in the amount of approximately
$250,000 to equity as part of the financing, and one or two non-officer
directors of Centaur may also participate in the financing. If this financing
is consummated, it is expected that the Company's percentage ownership in
Cutanix will decrease. A director of the Company is a director and major
stockholder, and the chief executive officer, of Cutanix. See "Certain
Transactions."
RESEARCH COLLABORATIONS
Centaur sponsors research at a number of institutions to augment its
internal resources. The Company has worked with scientists at the University
of Kentucky and OMRF through sponsored research contracts and research
collaborations since 1992. The research at the University of Kentucky was
conducted by Dr. Carney until he joined Centaur as Chief Technical Officer in
June 1996 and is continuing through collaboration with other University of
Kentucky scientists. The research at OMRF is conducted by Dr. Floyd in the
fields of free radical chemistry and mechanisms of drug action.
The Company plans to sponsor a research program with the Neuroscience
Institute of The Queen's Medical Center in Honolulu, Hawaii. The research
program is expected to be under the direction of Professor Bo Siesjo, M.D.,
Ph.D., and is aimed at understanding the role of OSA in neurodegeneration and
neuroinflammation, and the neuroprotective mechanisms of NRT action. The
Company previously sponsored a similar research program with Dr. Siesjo while
he was at the University of Lund in Sweden. In addition, Centaur has research
collaborations with the Department of Ophthalmology and Neuroscience Center-
Louisiana State University (preclinical studies in NRT mechanisms of action in
arthritis and myocardial ischemia); the Department of Chemistry-University of
Florida (medicinal chemistry); the Department of Pharmacology-University of
North Texas Health Science Center (preclinical studies in brain aging and
cognition) and other academic research institutions.
MANUFACTURING
Centaur has established a pilot GMP manufacturing facility with the capacity
to manufacture NRT compounds for preclinical research and early stage clinical
trials at its Sunnyvale, California headquarters. The Company is completing
the construction, and beginning the process of seeking regulatory approvals,
of a larger 30,000 square foot manufacturing facility in Santa Clara,
California. These facilities are expected to be sufficient to permit the
Company to produce the volume of product needed through the clinical trial
process and for early commercial sales, and position the Company to realize
manufacturing revenues. These facilities also permit the Company to gain the
knowledge and insights about the Company's products and technology that result
from developing and implementing the production methods, and afford the
Company the potential to enhance its proprietary position. Further expansion
of Centaur's facilities, procurement of a larger facility and/or arrangements
with third-party manufacturers will be required to satisfy later commercial
needs. See "Risk Factors--Absence of Sales and Marketing Experience and
Limited Manufacturing Capabilities".
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COMPETITION
The pharmaceutical industry is subject to intense competition and rapid and
significant technological change. Competitors of Centaur in the United States
and abroad are numerous and include, among others, pharmaceutical and
biotechnology companies, universities, and other research institutions. Many
of these companies and institutions, are actively engaged in activities
similar to those of Centaur, including research and development of products
for Parkinson's disease, stroke, AIDS dementia, Alzheimer's disease and
arthritis. While the Company believes that its products will offer significant
advantages over available products, currently marketed products often have a
significant competitive advantage over new entrants. If regulatory approvals
are received, certain of the Company's potential products will compete with
well-established, FDA approved proprietary and generic therapies that have
generated substantial sales over a number of years and which are reimbursed
from government health administration authorities and private health insurers.
There can be no assurance that Centaur's products under development will be
able to compete successfully with existing therapies or with products under
development by its competitors. Many of these competitors have substantially
greater financial and technical resources and production and marketing
capabilities than Centaur, and certain of these competitors may compete with
the Company in establishing development and marketing agreements with
pharmaceutical companies. In addition, many of the Company's competitors have
greater experience than the Company in conducting preclinical testing and
human clinical trials and obtaining FDA and other regulatory approvals. The
Company's competitors may succeed in obtaining FDA approval for products
sooner than Centaur.
GOVERNMENT REGULATION
The preclinical and clinical testing, manufacturing, labeling, distribution,
sales, marketing, promotion and advertising of the Company's products and its
research and development activities are subject to extensive regulation by
numerous governmental authorities in the United States and other countries.
Pharmaceutical products intended for therapeutic use in humans are governed by
FDA and state regulations in the United States and by comparable requirements
in foreign countries. The process of completing clinical testing and obtaining
regulatory approval for a new human drug requires a number of years and the
expenditure of substantial resources. There can be no assurance that any
product will successfully complete such testing or receive approval, or that
any approval will be timely or will not impose significant limitations
pertaining to the approved conditions of use.
The steps required before new human pharmaceutical products may be marketed
in the United States include (i) preclinical laboratory and animal tests, (ii)
submission to the FDA of an IND application, (iii) successful completion of
adequate and well-controlled human clinical trials establishing the safety and
efficacy of the drug, (iv) the submission of a New Drug Application ("NDA") to
the FDA and (v) FDA approval of the NDA.
Preclinical studies are conducted in the laboratory and in animal model
systems to gain preliminary information on the drug's efficacy and to identify
safety issues. The results of these studies are submitted to the FDA as part
of the IND application. Testing in humans may commence 30 days after filing of
the IND unless the FDA objects, although companies typically wait for approval
from the FDA before commencing clinical trials. Human clinical trials are
designed to collect data and information relating to drug activity, safety and
effectiveness for intended uses and proper dosing and other conditions of use.
Phase I clinical trials are typically not controlled and are conducted with a
small number of patients or healthy volunteers and are designed to determine
the metabolic and pharmacologic activities of the product, to test its safety
and, if possible, to gain early evidence on effectiveness. Phase II clinical
trials involve controlled studies in a limited number of patients to evaluate
the efficacy of the product for specific targeted indications and to determine
the common short term side effects and risks associated with the product.
Phase III clinical trials are controlled studies conducted to more
conclusively evaluate clinical efficacy and safety within an expanded patient
population. Phase III clinical trials often involve a substantial number of
patients in multiple study centers and may include chronic administration of
the product to assess the overall benefit-risk relationship of the product. A
given clinical trial may combine the elements of more than one phase, and
typically two or more Phase III studies are required. The designation of a
clinical trial as being of a particular Phase is not necessarily indicative
that such a trial will yield results sufficient to justify the continuation of
clinical testing. For example, no assurance can be given that a Phase III
clinical trial will be sufficient to support an NDA without further clinical
trials. The FDA monitors
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the progress of each of the three phases of clinical testing and may alter,
suspend or terminate the trials based on the data that have been accumulated
to that point and its assessment of the risk-benefit ratio to the patient.
Typical estimates of the total time required to complete clinical testing
under ordinary circumstances vary between four and ten years. Upon completion
of clinical testing which demonstrates that the product is safe and effective
for a specific indication, an NDA may be filed with the FDA. This application
includes detailed information pertaining to product chemistry, manufacturing
and quality control procedures, pre-clinical and clinical safety and efficacy
data and proposed labeling. FDA approval of the NDA is required before the
applicant may market the new product. There can be no assurance that the FDA
will conclude that the NDA contains adequate data and information pertaining
to chemistry, manufacturing and quality control procedures, and pre-clinical
and clinical safety and efficacy data, to justify approval of the NDA, or that
the FDA will not require the generation and submission of additional data and
information prior to approving the NDA, or that the FDA will not impose
significant limitations as a condition for approval.
Even after initial FDA approval has been obtained, further studies may be
required to provide additional data on safety. Further, separate approval in
the form of a supplemental NDA or a new NDA is required for the marketing of a
product as a treatment in clinical indications other than those for which the
product was initially tested. Also, the FDA may require post-marketing testing
and surveillance programs to monitor the drug's effects. Side effects
resulting from the use of pharmaceutical products may require the adoption of
restrictive/precautionary labeling and may result in the NDA being withdrawn
according to established procedures.
In addition to obtaining FDA approval for each product, each United States
and foreign drug manufacturing establishment must be registered with the FDA
and, if applicable, licensed by the State of California or other states.
United States manufacturing establishments are subject to biennial inspections
by the FDA and must comply with FDA-mandated GMP. The failure to adhere to GMP
can result in suspension of manufacturing until substantial compliance with
GMP is achieved, the recall of previously distributed products and,
ultimately, in the withdrawal of the NDA.
In addition to regulations enforced by the FDA, the Company also is subject
to regulation under the Occupational Safety and Health Act, federal
environmental protection statutes, the Toxic Substances Control Act, the
Resource Conservation and Recovery Act and other present and future federal,
state and local regulations. Failure to comply with applicable regulatory
requirements can, among other things, result in fines, suspensions and/or
withdrawals of regulatory approvals, product recalls, prohibitions against
manufacture, distribution, sales and/or marketing and criminal prosecution of
a company and/or its officers and employees. The Company believes that it is
in compliance with applicable environmental regulations, and future costs
associated with maintaining its current facilities in compliance are not
expected to have a material adverse impact on the Company's financial
position. However, there can be no assurance that the cost of environmental
compliance will not significantly increase the cost of constructing additional
manufacturing capacity in the future.
For distribution outside the United States, the Company will be subject to
FDA export requirements and foreign regulatory requirements governing human
clinical trials and marketing approval for drugs. The requirements relating to
the conduct of clinical trials, product licensing, pricing and reimbursement
vary widely from country to country.
As noted above, the Company and Astra have conducted Phase I clinical
studies of the Company's stroke compound in Sweden and expect to conduct a
Phase IIa clinical trial of such compound in Europe. These trials are not
being conducted pursuant to an FDA IND. See "--Stroke Program". In general,
the FDA accepts foreign studies to support clinical investigations in the
United States or marketing approval so long as such studies are well designed,
well conducted, performed by qualified investigators and conducted in
accordance with ethical principles acceptable to the world community. Such
studies would not typically be sufficient to form the sole basis for marketing
approval in the United States, and clinical studies would typically need to be
conducted in the United States as well. See "Risk Factors--No Assurance of FDA
Approval; Comprehensive Government Regulation."
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If certain of the Company's proprietary compounds are eventually marketed in
the United States, the Company may be required to manufacture the drug
substance for such sales in the United States pursuant to the provisions of
NIH grants received by the Company.
SCIENTIFIC ADVISORY BOARD
The Company has established a Scientific Advisory Board ("SAB") composed of
individuals with expertise in free radical chemistry, drug discovery model
development, drug screening, clinical pharmacology and clinical medicine. SAB
members assist the Company in identifying scientific and product development
opportunities, review with management the progress of the Company's projects
and assist in the recruitment and evaluation of the Company's scientific
staff. SAB members receive compensation for the services they provide to the
Company. Most SAB members have substantial commitments to third parties, which
commitments may conflict or compete with their obligation to the Company.
Accordingly, such persons devote only a small portion of their time to matters
related to the Company. See "Risk Factors--Dependence Upon Key Personnel; Need
to Attract Qualified Employees and Consultants".
The following individuals are members of the Company's Scientific Advisory
Board:
ROBERT FLOYD, PH.D., CHAIRMAN. Dr. Floyd, a co-founder of the Company, is
head of the Free Radical Biology and Aging Program at the Oklahoma Medical
Research Foundation and Professor of Biochemistry and Molecular Biology at the
University of Oklahoma Medical School in Oklahoma City, Oklahoma. Dr. Floyd
has published over 200 peer reviewed papers on the identification and
quantification of free radicals in biological systems, their roles in aging
and disease, and related subjects. Dr. Floyd consults with the Company on both
the mechanism of action of NRTs and the role of OSA in injury to biological
systems, including oxidative damage to brain tissue during stroke and trauma,
Parkinson's disease, Alzheimer's disease, AIDS dementia, inflammation and
aging.
GENERAL ADVISORS
BRUCE AMES, PH.D. Dr. Ames is Professor of Biochemistry and Molecular
Biology and Director of the National Institute of Environmental Health
Sciences Center at the University of California, Berkeley. Dr. Ames is a
member of the National Academy of Sciences and has published extensively on
the detection of free radical damage to DNA in biological tissue and the role
of antioxidants, vitamins and enzymes in aging. Dr. Ames consults with the
Company in the areas of OSA biochemistry and the role of antioxidants in
mitochondrial function and aging.
NICHOLAS BAZAN, M.D., PH.D. Dr. Bazan is Professor of Ophthalmology,
Biochemistry and Molecular Biology, and Neurology and Director of the
Neurosciences Program at Louisiana University Medical School in New Orleans,
Louisiana. Dr. Bazan is an internationally recognized neuroscientist,
ophthalmologist and lipid biochemist and has published over 300 peer reviewed
papers in the area of inflammatory processes and the role of cyclooxygenase-2
and platelet activating factor. Dr. Bazan consults with the Company in the
areas of inflammatory mechanisms, ophthalmology and arthritis.
M. FLINT BEAL, M.D. Dr. Beal is Professor and Chair of Neurology at Cornell
University Medical School in New York, New York. Dr. Beal has published over
200 peer reviewed papers on the preclinical and clinical importance of
metabolically derived OSA in aging and disease. Dr. Beal is recognized for his
research in the roles of mitochondrial dysfunction and free radical-induced
damage in neurodegeneration. Dr. Beal consults with the Company in the areas
of neurodegeneration mechanisms and Parkinson's disease therapeutics.
RONALD MASON, PH.D. Dr. Mason is Head, Free Radical Metabolite Section,
Laboratory of Pharmacology and Chemistry, National Institute of Environmental
Health Sciences, National Institute of Health, Research Triangle Park, North
Carolina. Dr. Mason has published more than 200 peer reviewed articles on the
chemistry of free radicals and the mechanism of action of antioxidants. Dr.
Mason consults with the Company in the areas of disease mechanisms and the
mechanism of NRT action.
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BO SIESJO, M.D., PH.D. Dr. Siesjo is Director of Research at the
Neuroscience Institute of the Queen's Medical Center, Honolulu, Hawaii. Dr.
Siesjo is the former Chairman of the Experimental Brain Research Center, Lund
University Hospital, University of Lund, Sweden. He has published over 500
peer reviewed articles on the biochemistry of stroke and metabolic
neurodegenerative conditions. His research into the role of calcium in
mitochondrial dysfunction in stroke and epilepsy is internationally
recognized. He consults with the Company in the areas of neurodegenerative
processes and stroke and trauma therapeutics.
EARL STADTMAN, PH.D. Dr. Stadtman is Chief, Section on Enzymes, Laboratory
of Biochemistry, National Heart, Blood and Lung Institute, at the National
Institutes of Health in Bethesda, Maryland. Dr. Stadtman is a member of the
National Academy of Science and has published over 200 peer reviewed articles
on the biochemistry of free radicals, free radical damage to proteins and
lipids and the mechanisms of action for antioxidants. Dr. Stadtman consults
with the Company in the areas of free radical biochemistry and NRT mechanism
of action.
SPECIFIC THERAPEUTIC PROGRAM ADVISORS
Parkinson's Disease
J. WILLIAM LANGSTON, M.D. Dr. Langston is President of the Parkinson's
Institute in Sunnyvale, California. Previously, Dr. Langston was Senior
Scientist and Director of the Parkinson's Disease Research Program for the
Institute of Medical Research in San Jose, California. In addition to his
clinical research background in Parkinson's disease, Dr. Langston co-
discovered the toxin MPTP and its mechanism of producing Parkinson-like
neurodegeneration, which is used as a model of Parkinson's disease. Dr.
Langston consults with the Company in the area of preclinical and clinical
Parkinson's disease research.
C. WARREN OLANOW, M.D. Dr. Olanow is Professor and Chairman of the
Department of Neurology of Mount Sinai School of Medicine, Mount Sinai Medical
Center, New York, New York. Dr. Olanow has published extensively on the
biochemistry of Parkinson's disease development and progression. He consults
with the Company in the area of Parkinson's disease treatment.
Stroke
LARS HILLERED, M.D., PH.D. Dr. Hillered is Professor of Neuroscience at
Uppsala University Medical Center, Uppsala, Sweden. Dr. Hillered has published
more than 100 peer reviewed articles on the neurochemistry and treatment of
stroke and trauma. He consults with the Company in the areas of mechanisms of
oxidative brain damage and NRT mechanism of action in stroke.
Alzheimer's Disease
KONRAD BEYREUTHER, PH.D. Dr. Beyreuther is Professor of Molecular Biology at
the Zentrum fur Molekulare Biologie, Heidelberg University, Heidelberg,
Germany. Dr. Beyreuther has published extensively on the mechanism of amyloid
plaque formation and the etiology of Alzheimer's disease. Dr. Beyreuther
consults with the Company in the area of Alzheimer's disease therapeutics.
ALBERT DRESSE, M.D., PH.D. Dr. Dresse is Professor of Pharmacology at the
University of Liege Medical School, Liege, Belgium. Dr. Dresse's fields of
expertise include neurodegeneration, electrophysiology and molecular biology
of learning, memory and aging. Dr. Dresse consults with the Company in the
area of Alzheimer's disease.
ZAVEN KHACHATURIAN, PH.D. Dr. Khachaturian is Director of the Ronald and
Nancy Reagan Institute for Alzheimer's Research. He is the former Program
Director of the Neuroscience and Neurology of Aging Division of the National
Institute of Aging. He consults with the Company in the area of Alzheimer's
disease therapeutics.
WILLIAM MARKESBERY, M.D. is Professor of Pathology and Neurology at the
University of Kentucky College of Medicine and Director of the Sanders-Brown
Center on Aging. In addition, he is the Director and Principal
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Investigator of the Alzheimer's Disease Research Center. Dr. Markesbery has
particular expertise in Alzheimer's disease and served on the U.S.
Congressional advisory panel on dementing illnesses. Dr. Markesbery has
published over 250 articles on brain pathology and Alzheimer's disease. He
consults with the Company in the area of Alzheimer's disease mechanisms and
clinical trial design.
Communication with many members of the Scientific Advisory Board takes place
on a regular basis. In accordance with consulting agreements the Company has
with these advisors, discoveries made as part of the consulting activity are
generally the property of the Company. Should scientific discoveries be made
by a member of the Scientific Advisory Board in conjunction with other
research at another institution rather than while acting as a consultant to
the Company, that discovery would generally be owned by the researcher or that
institution. If such a discovery were deemed to be helpful in the Company's
own research, the Company would have to enter into a license agreement in
order to utilize the discovery. The Company relies on its scientific advisors
to assist the Company in formulating its research and development strategy.
Retaining and attracting qualified advisors will be critical to the Company's
success.
EMPLOYEES
As of June 30, 1998, Centaur had 86 full-time employees of which 23 have
Ph.D. and/or M.D. degrees. Of the Company's full time employees, 55 work in
research and development, 14 work in manufacturing, product development and
QA/QC and 17 work in finance and administration. On December 31, 1995, 1996
and 1997 the Company had 55, 66 and 87 employees, respectively. The Company's
employees are not represented by any collective bargaining unit, the Company
has never experienced a work stoppage, and the Company believes that its
employee relations are good. See "Management--Executive Officers, Directors
and Key Employees."
FACILITIES
The Company leases approximately 31,000 square feet of laboratory,
production and office space in a single facility in Sunnyvale, California. The
lease expires in 2001. The Company also leases a 77,000 square foot facility
in Santa Clara, California, in which it is completing the construction, and
beginning the process of seeking regulatory approvals, of a 30,000 square foot
manufacturing plant that is designed to comply with GMP. This lease expires in
2004. While Centaur's existing facilities (including its facility under
construction) are believed to be sufficient to produce the volume of product
needed for clinical trials and early commercial sales, the Company expects
that larger facilities will be needed for any later stage commercial sales.
There can be no assurance that the Company will be able to obtain such space
on commercially reasonable terms.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The executive officers, directors and key employees of the Company are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Brian D. Frenzel................. 48 President, Chief Executive Officer and
Director
John M. Carney, Ph.D. (1)........ 51 Chief Technical Officer and Director
Joseph L. Turner................. 47 Chief Financial Officer and Treasurer
William A. Garland, Ph.D......... 53 Executive Vice President,
Pharmaceutical
Development
Vice President, Pharmaceutical
Kirk R. Maples, Ph.D. ........... 39 Discovery
John J. Vajda.................... 58 Vice President, Operations
Lucy O. Day...................... 39 Director of Finance and Administration
Mark R. Collins (2).............. 50 Director
Graham K. Crooke, MB.BS. (3)(4).. 39 Director
Steinar J. Engelsen, M.Sc., M.D.
(4)............................. 47 Director
Charles R. Engles (1)............ 50 Director
Selvi Vescovi (2)(3)............. 68 Director
</TABLE>
- --------
(1) Member of the Intellectual Property Oversight Committee.
(2) Member of the Finance and Audit Committee.
(3) Member of the Compensation Committee.
(4) Member of the Regulatory Oversight Committee.
BRIAN D. FRENZEL. Mr. Frenzel is a co-founder of the Company and has been a
director since April 1992 and President and Chief Executive Officer since
October 1992. Mr. Frenzel was also Acting Chief Financial Officer from August
1996 until November 1997. In 1991, Mr. Frenzel co-founded Vesta Medical Inc.,
a company that developed minimally invasive surgical device technology. Mr.
Frenzel served as President of Vesta Medical Inc. until July 1994, and
Chairman of the Board until July 1996, when the company was acquired by Pfizer
Inc. Mr. Frenzel also serves on the Board of the Glenn Foundation for Medical
Research (the "Glenn Foundation"), a non-profit foundation specializing in
aging research that is a principal stockholder of the Company, and is a member
of the board of advisors of Charter Venture Capital, a principal stockholder
of the Company. Mr. Frenzel received a B.S. in physics and an M.B.A. from
Stanford University.
JOHN M. CARNEY, PH.D. Dr. Carney co-founded the Company and has been a
director since its inception in March 1992 and a member of the Intellectual
Property Oversight Committee since May 1998. Dr. Carney was President of the
Company from March 1992 until October 1992 and Chairman of the Board of
Directors from October 1992 until July 1996. After four years as a scientific
consultant to the Company, Dr. Carney joined the Company as its full time
Chief Technical Officer in June 1996. From 1987 until June 1996, Dr. Carney
was an Associate Professor of Pharmacology at the University of Kentucky
College of Medicine. He has published over 100 papers in the fields of
pharmacology and neurophysiology. Dr. Carney received a B.S. in biology from
St. Mary's College, an M.S. in vertebrate zoology from San Diego State
University, and a Ph.D. in pharmacology from the University of Michigan at Ann
Arbor.
JOSEPH L. TURNER. Mr. Turner joined the Company as Chief Financial Officer
and Treasurer in November 1997. From 1992 until November 1997, Mr. Turner was
Vice President, Finance and Administration, Chief Financial Officer, Secretary
and Treasurer of Cortech, Inc., a biopharmaceutical firm. From 1979 to 1992,
Mr.
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Turner served in various management positions at Eli Lilly and Company, a
pharmaceutical company, most recently as Director of Finance of Eli Lilly S.A.
(Switzerland). He received a B.A. in Chemistry from Swarthmore College, an
M.A. in molecular biology from the University of Colorado, and an M.B.A. from
the University of North Carolina at Chapel Hill.
WILLIAM A. GARLAND, PH.D. Dr. Garland joined the Company as Vice President,
Pharmaceutical Development in August 1994 and became Executive Vice President,
Pharmaceutical Development in February 1997. Prior to joining the Company, Dr.
Garland spent 20 years with Hoffmann-La Roche Inc., a pharmaceutical company,
most recently as Senior Director and U.S. Head of International Project
Management from March 1991 until July 1994. Dr. Garland received a B.S. in
chemistry from the University of San Francisco and a Ph.D. in medicinal
chemistry from the University of Washington School of Pharmacy.
KIRK R. MAPLES, PH.D. Dr. Maples joined the Company as Director of
Biochemistry in May 1993. He became Senior Director and Group Project Leader
in February 1995 and Vice President, Pharmaceutical Discovery in February
1996. Prior to joining the Company, Dr. Maples was an Associate Scientist at
the Inhalation Toxicology Research Institute from 1989 to April 1993 and was a
Clinical Assistant Professor at the University of New Mexico College of
Pharmacy from August 1991 to April 1993. Dr. Maples received a B.S. in
chemistry from the University of Missouri at Kansas City and a Ph.D. in
inorganic chemistry from Duke University.
JOHN J. VAJDA. Mr. Vajda joined the Company in January 1997 as Director of
Operations and became Vice President, Operations in charge of facilities,
manufacturing and process development in February 1998. Prior to joining the
Company, Mr. Vajda was General Manager at Biostride, Inc., an in vitro
diagnostic product company, from October 1995 to October 1996. From February
1993 to October 1995, Mr. Vajda was Director of Operations of OCULEX
Pharmaceuticals, Inc., a manufacturer of pharmaceuticals for eye care. Mr.
Vajda has attended New York University in biology and chemistry.
LUCY O. DAY, CPA. Ms. Day joined the Company as Controller in February 1994
and was appointed Director of Finance in February 1997 and Director of Finance
and Administration in February 1998. Prior to joining the Company, Ms. Day
worked at Bank of America NT&SA from 1990 to January 1994, most recently as
Vice President, Financial Consolidation and Reporting from January 1993 to
January 1994. Ms. Day received a B.A. in political economies of industrial
societies from the University of California at Berkeley and is a Certified
Public Accountant in the State of California.
MARK R. COLLINS. Mr. Collins has been a director of the Company since its
inception in March 1992 and a member of the Finance and Audit Committee since
September 1993. Mr. Collins was the Company's Chief Financial Officer from its
inception until August 1996. Since 1986, Mr. Collins has been Executive Vice
President and a member of the Board of Directors of the Glenn Foundation, a
private non-profit foundation specializing in aging research that is a
principal stockholder of the Company.
GRAHAM K. CROOKE, MB.BS. Dr. Crooke has been a director of the Company since
September 1995, a member of the Compensation Committee since November 1995 and
a member of the Regulatory Oversight Committee since June 1998. Since
September 1997, Dr. Crooke has been a principal of Ticonderoga Capital, Inc.
(formerly Dillon Read Venture Capital), a venture capital firm that provides
management services to Concord Partners II, L.P. (a principal stockholder of
the Company), and has been a general partner of the general partner of Concord
Partners II, L.P. From April 1992 to September 1997, Dr. Crooke held various
positions with Dillon Read Venture Capital, most recently as Vice President.
Dr. Crooke is a director of several privately-held companies. He earned his
medical degree from the University of Western Australia and an M.B.A. from the
Stanford Graduate School of Business.
STEINAR J. ENGELSEN, M.SC., M.D. Dr. Engelsen became a director of the
Company and member of the Regulatory Oversight Committee in June 1998. Since
November 1996, Dr. Engelsen has been a partner of Teknoinvest Management AS, a
venture capital firm. From 1989 until September 1996, Dr. Engelsen was
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employed in various management positions with responsibility for therapeutic
research and development within Hafslund Nycomed AS, a pharmaceutical company
based in Europe, and affiliated companies, most recently serving as Senior
Vice President, Research and Development of Nycomed Pharma AS from January
1994 until September 1996. Dr. Engelsen received an M.Sc. in nuclear chemistry
and an M.D. from the University of Oslo. Dr. Engelsen is a director of Axis
ASA (a Norwegian public company) and several privately-held companies.
CHARLES R. ENGLES. Mr. Engles became a director of the Company and a member
of the Intellectual Property Committee in June 1998. Since November 1997, Mr.
Engles has been President and Chief Executive Officer of Cutanix, an affiliate
of the Company engaged in development of products for dermatology, cosmetics
and other skin care applications. From October 1994 until March 1997, Mr.
Engles was Chairman and Chief Executive Officer of Stillwater Mining Co. a
platinum and palladium mining and processing company. From May 1989 until
October 1994, Mr. Engles was Senior Vice President, Corporate Development of
Johns Manville Corp., a building materials company. Mr. Engles received a B.A.
in electrical engineering from Rice University, an M.Sc. in management from
the University of Warwick and a Ph.D. in operations research from Stanford
University. Mr. Engles also studied as a Rhodes scholar at Oxford University.
Mr. Engles is a director of Sundance Homes, Inc., a builder of single family
homes.
SELVI VESCOVI. Mr. Vescovi has been a director of the Company since May 1996
and a member of the Finance and Audit Committee and Compensation Committee
since May 1998. Since 1988, Mr. Vescovi has been a consultant to the
pharmaceutical industry. Prior to 1988, Mr. Vescovi spent 35 years with Upjohn
Company, a pharmaceutical company, serving in a variety of senior positions,
including President and General Manager of the International Division. From
May 1992 until June 1996, Mr. Vescovi was Chairman of the Board of Carrington
Laboratories, Inc., a research-based pharmaceutical and medical device
company. Mr. Vescovi currently is a director of Carrington Laboratories, Inc.
and one privately held company. Mr. Vescovi received a B.S. in biology from
the College of William and Mary.
Directors are elected at each annual meeting of stockholders to serve until
the next annual meeting of stockholders, or until their successors are duly
elected and qualified, or until their earlier resignation, removal or death.
The Company's directors were elected pursuant to the terms of a voting
agreement (the "Voting Agreement") under which certain stockholder groups have
the right to designate members of the Company's Board of Directors. The Voting
Agreement will terminate upon the consummation of this offering.
BOARD COMMITTEES
Finance and Audit Committee. The Finance and Audit Committee of the Board
consists of Mr. Collins and Mr. Vescovi. The Finance and Audit Committee
reviews the Company's financial statements and accounting practices, makes
recommendations to the Board regarding the selection of independent auditors
and reviews the results and scope of the audit and other services provided by
the Company's independent auditors.
Compensation Committee. The Compensation Committee of the Board consists of
Dr. Crooke and Mr. Vescovi. The Compensation Committee makes recommendations
to the Board concerning salaries and incentive compensation for the Company's
officers and employees and administers the Company's employee benefit plans.
Regulatory Oversight Committee. The Regulatory Oversight Committee of the
Board consists of Drs. Engelsen and Crooke. The Regulatory Oversight Committee
oversees the Company's regulatory compliance and clinical trial activities.
Intellectual Property Oversight Committee. The Intellectual Property
Oversight Committee consists of Dr. Carney and Mr. Engles. The Intellectual
Property Oversight Committee makes recommendations to the Board regarding the
Company's intellectual property portfolio and reviews the Company's policies
and procedures for protecting its intellectual property rights.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee of the Board was an
officer or employee of the Company during 1997. No executive officer of the
Company serves as a member of the board of directors or compensation committee
of any for-profit entity that has one or more executive officers serving on
the Company's Board or Compensation Committee, except that Mr. Frenzel serves
on the Board of Directors of Cutanix, whose chief executive officer, Mr.
Engles, is a director of the Company.
DIRECTOR COMPENSATION
Directors of the Company do not receive cash compensation for their services
as directors (other than Mr. Vescovi, who receives a fee of $1,000 per month)
but are reimbursed for their reasonable expenses in attending meetings of the
Board. In 1997, Mr. Collins, Dr. Crooke and Mr. Vescovi each received a
nonqualified stock option to purchase 5,000 shares of Common Stock at $2.50
per share, expiring in 2007. In February 1998, Mr. Collins, Dr. Crooke and Mr.
Vescovi each received an additional nonqualified stock option to purchase
5,000 shares of Common Stock at $4.00 per share, expiring in 2008. Also in
February 1998, Dr. Engelsen, who became a director of the Company in June
1998, received a warrant to purchase 5,000 shares of Common Stock at $4.00 per
share. Such warrant will vest monthly over 36 months provided Dr. Engelsen
continues to provide services to the Company as a consultant and/or director.
In connection with his June 1998 appointment as a director of the Company, Mr.
Engles received a nonqualified stock option to purchase 5,000 shares of Common
Stock at $6.50 per share, expiring in 2008.
In June 1998, the Board adopted the Directors Plan and reserved a total of
125,000 shares of the Company's Common Stock for issuance thereunder. The
Directors Plan will become effective upon the date of this Prospectus (the
"Effective Date"). Members of the Board who are not employees of the Company
are eligible to participate in the Directors Plan. Each eligible director who
first becomes a member of the Board on or after the Effective Date will
initially automatically be granted an option for a number of shares equal to
417 shares multiplied by the number of full and partial calendar months
between (a) the date such director first becomes a director and (b) the
following May 1. On May 1 of each year following the Effective Date, each
eligible director will automatically be granted an additional option to
purchase 5,000 shares if such director has served continuously as a member of
the Board since the date of grant of such director's initial option, or if
such director did not receive an initial option, such director has served
continuously as a member of the Board since the Effective Date. All options
issued under the Directors Plan will vest as to 1/36 of the shares on each
monthly anniversary of the date of grant, provided the optionee continues as a
member of the Board or as a consultant to the Company. The exercise price of
all options granted under the Directors Plan will be the fair market value of
the Common Stock on the date of grant.
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EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by or
paid for services rendered to the Company in all capacities during fiscal 1997
by (i) the Company's chief executive officer and (ii) the Company's other
executive officers who were serving as executive officers at the end of 1997
and whose total annual salary during 1997 equaled or exceeded $100,000
(together, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
NAME AND PRINCIPAL ------------------- --------------------------------
POSITIONS SALARY SECURITIES UNDERLYING OPTIONS(#)
------------------ ------------------- --------------------------------
<S> <C> <C>
Brian D. Frenzel.......... $218,877 15,000
President and Chief Exec-
utive Officer
John M. Carney, Ph.D...... 157,219 6,250
Chief Technical Officer
William A. Garland, Ph.D.. 187,056 20,000
Executive Vice President,
Pharmaceutical
Development
</TABLE>
In November 1997, Joseph L. Turner was appointed Chief Financial Officer and
Treasurer of the Company at an initial base salary of $150,000 per year. In
connection with his appointment, Mr. Turner was granted an incentive stock
option to purchase 100,000 shares of Common Stock at an exercise price of
$2.50 per share, expiring in November 2007.
49
<PAGE>
The following table sets forth further information regarding option grants
pursuant to the Company's 1993 Incentive Plan during 1997 to each of the Named
Executive Officers. In accordance with the rules of the Securities and
Exchange Commission, the table sets forth the hypothetical gains or "option
spreads" that would exist for the options at the end of their respective ten-
year terms. These gains are based on assumed rates of annual compound stock
price appreciation of 5% and 10% from the date the option was granted to the
end of the option term.
OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
NUMBER OF RATES OF STOCK PRICE
SECURITIES PERCENT OF TOTAL APPRECIATION FOR OPTION
UNDERLYING OPTIONS GRANTED TERM (3)
OPTIONS TO EMPLOYEES EXERCISE PRICE EXPIRATION ------------------------
NAME GRANTED (1) IN 1997 PER SHARE (2) DATE 5% 10%
- ---- ----------- ---------------- -------------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Brian D. Frenzel........ 15,000 3.2% $2.50 2/06/07 $ 23,584 $ 59,765
John M. Carney, Ph.D.... 6,250 1.3 2.50 2/06/07 9,826 24,902
William A. Garland,
Ph.D................... 20,000 4.3 2.50 2/06/07 31,445 79,687
</TABLE>
- --------
(1) All the options shown in the table are incentive stock options to purchase
shares of Common Stock. Options vest monthly over a four-year period, with
one forty-eighth of the shares vesting each month on a date specified by
the Board on the date of grant, provided that the optionee continues to
render services to the Company.
(2) Options were granted at an exercise price equal to the fair market value
of the Common Stock on the date of grant, as determined by the Board.
(3) The 5% and 10% assumed annual compound rates of stock price appreciation
are mandated by the rules of the Securities and Exchange Commission and do
not represent the Company's estimate or projection of future Common Stock
prices.
The above table does not reflect options granted since December 31, 1997, as
follows: incentive stock options granted on February 13, 1998, at an exercise
price of $4.00 per share, expiring February 12, 2008, to Mr. Frenzel (20,000
shares), Dr. Carney (15,000 shares) and Dr. Garland (20,000 shares). See
footnotes (1) and (2) above.
The following table sets forth information with respect to (i) the exercise
of stock options by Named Executive Officers during the fiscal year ended
December 31, 1997 and (ii) the number of shares covered by both exercisable
and unexercisable stock options as of December 31, 1997. Also reported are
values of "in-the-money" options that represent the positive spread between
the respective exercise prices of outstanding stock options and the fair
market value of the Company's Common Stock as of December 31, 1997.
AGGREGATE OPTION EXERCISES IN 1997
AND YEAR-END VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE AT FISCAL YEAR-END FISCAL YEAR-END (1)
EXERCISE REALIZED ----------------------------------- -------------------------
(#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- -------- --------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Brian D. Frenzel........ 65,000 $312,188 76,770 51,980 $669,264 $425,736
John M. Carney, Ph.D.... -- -- 6,093 10,157 49,187 76,439
William A. Garland,
Ph.D................... 99,279 479,513 9,896 48,325 77,618 388,503
</TABLE>
- --------
(1) For purposes of determining the value of in-the-money options, the fair
market value of the Company's Common Stock as of December 31, 1997 is
deemed to be $9.00.
50
<PAGE>
EMPLOYMENT AGREEMENT
The Company entered into an employment agreement with Mr. Frenzel, effective
as of December 1, 1993, in connection with Mr. Frenzel's service as President
and Chief Executive Officer of the Company (the "Employment Agreement"). The
Employment Agreement contemplated that, due to other commitments, Mr. Frenzel
initially would serve the Company as a part-time employee but would become a
full-time employee on or before September 1, 1994 (the "Full Time Employment
Date"). Mr. Frenzel became a full-time employee on July 1, 1994. The
Employment Agreement provided that Mr. Frenzel would receive a salary of
$132,500 as a part-time employee and an initial minimum salary of $175,000 as
a full-time employee. The initial term of the Employment Agreement was four
years. The Employment Agreement is currently renewable automatically for
successive one-year terms on the same terms and conditions, unless either
party notifies the other of its intention to terminate at least 90 days before
the expiration of the applicable term. The Employment Agreement provides that
Mr. Frenzel's employment may be terminated by the Company, with or without
cause, or voluntarily by Mr. Frenzel. If the Company terminates the Employment
Agreement for cause, or if Mr. Frenzel terminates the Employment Agreement
voluntarily, the Company is obligated to pay Mr. Frenzel only compensation and
benefits otherwise payable to Mr. Frenzel through the effective date of such
termination. If the Company terminates the Employment Agreement without cause,
the Company must pay Mr. Frenzel a severance payment equal to six months'
salary, payable on the Company's normal payroll dates during that period;
provided, however, that if Mr. Frenzel secures other full-time employment
during such six-month period, the Company will pay an amount equal to one half
of any additional amount the Company would have been obligated to pay Mr.
Frenzel for the period from the date on which Mr. Frenzel secured such other
employment until the end of the six-month period.
Pursuant to the terms of the Employment Agreement, the Company granted Mr.
Frenzel an incentive stock option to purchase up to 300,000 shares of Common
Stock at a price of $0.15 per share (the "Option"). One half of the Option
vested monthly over four years beginning on December 1, 1993, and the other
half vested monthly over four years beginning on the Full-Time Employment
Date. The Option was fully vested on July 1, 1998. To date, Mr. Frenzel has
purchased 221,250 shares of Common Stock upon exercise of the Option.
EMPLOYEE BENEFIT PLANS
1993 Equity Incentive Plan. In February 1993, the Board adopted the
Company's 1993 Incentive Plan. As originally adopted, the 1993 Incentive Plan
reserved 500,000 shares of Common Stock for issuance. This reserve was
increased to 1,500,000 shares in April 1994, 1,540,000 shares in February
1996, 2,000,000 shares in May 1996, 2,250,000 shares in July 1996 and
2,400,000 shares in February 1998. As of June 30, 1998, under the 1993
Incentive Plan, options to purchase 1,789,782 shares of Common Stock at
exercise prices from $0.10 to $10.00 per share were outstanding, options to
purchase 517,653 shares of Common Stock had been exercised, and options to
purchase 92,565 shares of Common Stock were available for grant. From July 1
through July 17, 1998 (the last date on which options were granted), the Board
granted options to purchase an additional 32,500 shares of Common Stock at an
exercise price of $10.00 per share. Generally, options granted under the 1993
Incentive Plan are subject to the terms described below with respect to
options granted under the 1998 Equity Incentive Plan (the "1998 Incentive
Plan") although there is no limit on the aggregate number of options that may
be granted to an optionee under the 1993 Incentive Plan.
1998 Equity Incentive Plan. In June 1998, the Board adopted the 1998
Incentive Plan. The 1998 Incentive Plan will become effective upon the
Effective Date and will serve as the successor equity incentive program to the
Company's 1993 Incentive Plan. Options granted under the 1993 Incentive Plan
before its termination will remain outstanding in accordance with their terms,
but no further options will be granted under the 1993 Incentive Plan after the
Effective Date. The Company has reserved 1,000,000 shares of Common Stock for
issuance under the 1998 Incentive Plan. In addition, any authorized shares not
issued or subject to outstanding options under the 1993 Incentive Plan on the
Effective Date, and any shares that (i) are subject to issuance upon exercise
of an option granted under the 1993 Incentive Plan or the 1998 Incentive Plan
but cease to be subject to such option for any reason other than exercise of
such option, (ii) are subject to an award granted under the 1993
51
<PAGE>
Incentive Plan or the 1998 Incentive Plan but are forfeited or are repurchased
by the Company at the original issue price or (iii) are subject to an award
that otherwise terminates without shares being issued will be available for
grant and issuance in connection with future awards under the 1998 Incentive
Plan.
The 1998 Incentive Plan provides for the grant of stock options and stock
bonuses and the issuance of restricted stock by the Company to its employees,
officers, directors, consultants, independent contractors and advisers. The
1998 Incentive Plan will be administered by the Compensation Committee of the
Board, currently consisting of Dr. Crooke and Mr. Vescovi. The 1998 Incentive
Plan permits the Compensation Committee to grant options that are either
incentive stock options (as defined in Section 422 of the Internal Revenue
Code) or nonqualified stock options, on terms (including the exercise price,
which may not be less than 85% of the fair market value of the Company's
Common Stock, and the vesting schedule) determined by the Compensation
Committee, subject to certain statutory and other limitations in the 1998
Incentive Plan. In addition to, or in tandem with, awards of stock options,
the Compensation Committee may grant participants restricted stock awards to
purchase the Company's Common Stock for not less than 85% of its fair market
value at the time of grant. The other terms of such restricted stock awards
may be determined by the Compensation Committee. The Compensation Committee
may also grant stock bonus awards of the Company's Common Stock either in
addition to, or in tandem with, other awards under the 1998 Incentive Plan,
under such terms, conditions and restrictions as the Compensation Committee
may determine. The 1998 Incentive Plan will terminate in 2008, unless
terminated earlier in accordance with the provisions of the 1998 Incentive
Plan.
1998 Employee Stock Purchase Plan. In June 1998, the Board adopted the
Purchase Plan and reserved a total of 125,000 shares of the Company's Common
Stock for issuance thereunder. In addition, on each January 1, the aggregate
number of shares reserved for issuance under the Purchase Plan will be
increased automatically by a number of shares equal to one quarter of one
percent of the total outstanding shares of Common Stock of the Company on the
immediately preceding December 31. Such increase is limited to a maximum of
200,000 shares per year. The Purchase Plan permits eligible employees to
acquire shares of the Company's Common Stock through payroll deductions. The
Purchase Plan is intended to qualify as an "employee stock purchase plan"
under Section 423 of the Internal Revenue Code. Except for the initial
offering under the Purchase Plan, each offering under the Purchase Plan will
be for a period of eighteen months (the "Offering Period") consisting of three
six-month purchase periods (each a "Purchase Period"). Except for the first
Offering Period, Offering Periods under the Purchase Plan will commence on
February 1 and August 1 of each year. The Board has the authority to determine
the date on which the first Offering Period will begin and the duration of
such offering period. The Board has the power to set the beginning of any
Offering Period, to terminate any Offering Period under certain circumstances
and to change the duration of Offering Periods without stockholder approval,
provided that the change is announced at least 15 days prior to the scheduled
beginning of the first Offering Period to be affected. Eligible employees may
select a rate of payroll deduction between 2.0% and 10% of their compensation,
up to an aggregate total payroll deduction not to exceed $25,000 in any
calendar year. The purchase price for the Company's Common Stock purchased
under the Purchase Plan is 85% of the lesser of the fair market value of the
Company's Common Stock on the first day of the Offering Period or on the last
day of the applicable Purchase Period.
52
<PAGE>
CERTAIN TRANSACTIONS
Since January 1, 1995, there has not been, nor is there currently proposed,
any transaction or series of similar transactions to which the Company was or
is to be a party in which the amount involved exceeds $60,000 and in which any
director, executive officer or holder of more than five percent of the Common
Stock of the Company had or will have a direct or indirect material interest
other than (i) compensation arrangements, which are described where required
under "Management," and (ii) the transactions described below.
SECURITIES ISSUANCES
From February through October 1997, the Company sold an aggregate of
2,200,000 shares of the Company's Series D Preferred Stock to 60 individuals
and entities at the price of $7.50 per share, for an aggregate purchase price
of $16,500,000, paid in cash. The following individuals and entities, which
were, at the time, executive officers, directors or their affiliates, five
percent stockholders and/or members of a five percent stockholder group,
purchased shares in the amounts set forth immediately after their respective
names: (i) Paul F. Glenn, Trustee, Paul F. Glenn Revocable Trust (66,667
shares), and the Glenn Foundation (33,334 shares), members of a five percent
stockholder group; (ii) Brian D. Frenzel, President, Chief Executive Officer,
a director and a five percent stockholder (10,000 shares); (iii) Selvi
Vescovi, a director (5,000 shares); (iv) Charter Ventures II, L.P. (40,000
shares), member of a five percent stockholder group; (v) Menlo Ventures IV,
L.P. (66,666 shares), a five percent stockholder; and (vi) Oklahoma Medical
Research Foundation (20,000 shares), of which an executive officer and trustee
was then a director of the Company. The funds obtained in the Series D
Preferred Stock offering have been used to support the Company's research and
development activities, including clinical trials for Parkinson's disease and
AIDS dementia, its administrative activities, and for working capital.
In addition, since January 1, 1995, the Company has issued 2,730 shares of
Common Stock as compensation for consulting services and issued warrants to
purchase an aggregate of 35,000 shares of Common Stock, having exercise prices
of from $3.00 to $4.00 per share, as compensation for consulting services. Of
these warrants, 5,000 were issued in 1998 to Steinar Engelsen, who became a
director of the Company in June 1998. Finally, since January 1, 1995 through
July 17, 1998 (the last date on which options were granted) the Company
granted options to purchase an aggregate of 1,569,979 shares of its Common
Stock, having exercise prices of from $0.20 per share to $10.00 per share, to
employees, directors and consultants under the 1993 Incentive Plan and issued
515,904 shares of Common Stock to employees, directors and consultants upon
exercise of outstanding options, having exercise prices of from $0.10 per
share to $4.00 per share.
INDEBTEDNESS OF MANAGEMENT
In January 1998, the Company made a short-term relocation loan to Joseph L.
Turner, its Chief Financial Officer and Treasurer. The principal amount of
$371,322 accrued interest at an annual rate of 6%. Mr. Turner repaid the
balance of $342,679 (net of certain expenses paid by the Company) and $1,997
in accrued interest in February 1998.
OTHER TRANSACTIONS
Charles Engles, a director of the Company, is the chief executive officer
and a director and major stockholder of Cutanix, a corporation formed in
November 1997 to develop dermatological drugs and cosmetics. The Company
currently owns 63% of the outstanding capital stock of Cutanix, and Mr. Engles
currently owns 21% of its outstanding capital stock. In January 1998, the
Company exclusively licensed to Cutanix all of its current and future
technology for the fields of dermatology, cosmetics and other skin care
applications. The license agreement also provides that either Centaur or
Cutanix may obtain the exclusive right to use Company compounds, with certain
exceptions, by agreeing to take certain actions to develop the compound.
Accordingly, Cutanix could obtain exclusive rights to a compound that the
Company might otherwise choose to develop. The Company and Cutanix also
entered into a services and supply agreement in January 1998 under which the
Company agreed to provide certain administrative and other services to Cutanix
at cost. In addition, the Company
53
<PAGE>
and Cutanix agreed that the Company would be the exclusive supplier of NRT
active compounds to Cutanix (subject to certain rights of each party to
terminate this exclusivity) at a cost-based purchase price. The Company has
committed to contribute up to $250,000 in cash and services to Cutanix. The
Company, Mr. Engles and another stockholder of Cutanix have agreed to maintain
a three person Board of Directors with one representative of each on the
Board, subject to certain limited exceptions, and have also agreed that
certain major corporate actions will require the approval of 75% of the
members of the Board of Directors, all for a period of ten years. Cutanix is
currently in the process of raising capital in a private equity financing to
fund the continued development of its lead compounds, although there can be no
assurance that Cutanix will be able to consummate this financing. The Company
expects to convert its outstanding loans to Cutanix in the amount of
approximately $250,000 to equity as part of the financing, and one or two non-
officer directors of Centaur may also participate in the financing. If this
financing is consummated, it is expected that the Company's percentage
ownership in Cutanix will decrease. See "Business--Cutanix-Skin Care
Affiliate" and Note 1 of Notes to Financial Statements.
Mark Collins, a director of the Company, has provided consulting services to
the Company from time to time and received compensation therefor. In 1997, the
Company paid Mr. Collins $18,000 as compensation for such services.
54
<PAGE>
PRINCIPAL STOCKHOLDERS
Unless otherwise indicated, the following table sets forth certain
information known to the Company with respect to the beneficial ownership of
the Company's Common Stock as of June 30, 1998 by: (i) each person who is
known by the Company to be the beneficial owner of more than five percent of
the Company's Common Stock, (ii) each director of the Company, (iii) each of
the Named Executive Officers (see "Management--Executive Compensation"), and
(iv) all executive officers and directors of the Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES BENEFICIALLY
NUMBER OF OWNED (1)
SHARES ----------------------
5% STOCKHOLDERS, DIRECTORS AND BENEFICIALLY BEFORE AFTER
NAMED EXECUTIVE OFFICERS OWNED(1) OFFERING OFFERING
------------------------------ ------------ --------- ---------
<S> <C> <C> <C>
Graham K. Crooke, MB.BS. and
Concord Partners II, L.P.(2)........... 1,602,981 11.6% 10.4%
535 Madison Avenue, 36th Floor
New York, New York 10022
Menlo Ventures IV, L.P.(3)............. 1,290,692 9.3 8.4
3000 Sand Hill Road, Bldg. 4, Ste. 100
Menlo Park, California 94025
Paul F. Glenn(4)....................... 1,219,960 8.8 8.0
c/o Glenn Foundation
1250 Coast Village Road, Suite K
Santa Barbara, California 93108
Bismuth Investments Limited(5)......... 1,142,857 8.3 7.4
Suite 922C
Europort, Gibraltar
Charter Ventures, a California limited
partnership(6)........................ 1,053,637 7.6 6.9
525 University Avenue, Suite 1500
Palo Alto, California 94301
Neuroscience Partners Limited
Partnership(7)........................ 990,475 7.2 6.5
100 International Boulevard
Etobicoke, Ontario,
Canada M9W 6J6
Brian D. Frenzel(8).................... 906,721 6.5 5.9
c/o Centaur Pharmaceuticals, Inc.
484 Oakmead Parkway
Sunnyvale, California 94086
Robert A. Floyd, Ph.D.(9).............. 806,250 5.8 5.3
c/o Oklahoma Medical Research
Foundation
825 North East 13th Street
Oklahoma City, OK 73104
John M. Carney, Ph.D.(10).............. 632,456 4.6 4.1
c/o Centaur Pharmaceuticals, Inc.
484 Oakmead Parkway
Sunnyvale, California 94086
Mark R. Collins(11).................... 287,269 2.1 1.9
William A. Garland, Ph.D.(12).......... 135,061 1.0 *
Charles R. Engles(13).................. 21,722 * *
Steinar J. Engelsen, M.D.(14).......... 13,170 * *
Selvi Vescovi(15)...................... 12,812 * *
All executive officers and directors as
a group (9 persons)(16)............... 3,628,858 25.9 23.4
</TABLE>
- --------
* Less than 1% of the Company's outstanding Common Stock
(1) Percentage ownership is based on 13,843,118 shares outstanding as of June
30, 1998 (assuming conversion of the Preferred Stock) and 15,343,118
shares outstanding after the offering (assuming no additional shares are
outstanding other than the 13,843,118 shares outstanding as of June 30,
1998 and the 1,500,000 shares offered by the Company
55
<PAGE>
hereby). Unless otherwise indicated below, the persons and entities named
in the table have sole voting and sole investment power with respect to all
shares beneficially owned, subject to community property laws where
applicable. Shares of Common Stock subject to options or warrants that, as
of June 30, 1998, were currently exercisable or were to become exercisable
within 60 days of June 30, 1998 are deemed to be outstanding and to be
beneficially owned by the person holding such options or warrants for the
purpose of computing the percentage ownership of such person but are not
treated as outstanding for the purpose of computing the percentage
ownership of any other person.
(2) Represents 1,250 shares of Common Stock that may be acquired upon
exercise of stock options held by Dr. Crooke that, as of June 30, 1998,
were currently exercisable or were to become exercisable within 60 days
of June 30, 1998, 17,316 shares of Common Stock beneficially owned by Dr.
Crooke and 1,584,415 shares held of record by Concord Partners II, L.P.
("Concord II"). Of the 17,316 shares beneficially owned by Dr. Crooke,
10,129 shares are held by Dillon, Read & Co. Inc., as Agent, which shares
investment control with respect to such shares with Dr. Crooke. The
investment policies and affairs of Concord II are managed by its general
partner, Venture Associates II, L.P. ("Venture Associates"), of which
CPML Associates, Inc. ("CPML") is the managing general partner. Dr.
Crooke, a director of the Company, is a general partner of Venture
Associates and one of three principals of CPML.
(3) MV Management IV, L.P., a California limited partnership, is the sole
general partner of Menlo Ventures IV, L.P. and is deemed to have voting
and investment power with respect to the shares held by Menlo Ventures
IV, L.P.
(4) Represents 1,186,626 shares held of record by Paul F. Glenn, Trustee,
Paul F. Glenn Revocable Trust (including 118,012 shares of Common Stock
transferred by Dr. Carney in July 1998), and 33,334 shares held of record
by Glenn Foundation. Mr. Glenn is President and a member of the Board of
Directors of Glenn Foundation. Mr. Collins and Mr. Glenn each has voting
and investment power with respect to the shares held of record by the
Glenn Foundation (the "Glenn Foundation Shares"). Accordingly, such
shares are also included as securities beneficially owned by Mr. Collins.
See footnotes (4) and (11).
(5) Bismuth Investments Limited ("Bismuth") is a British Virgin Islands
corporation and voting and investment control of the shares held by
Bismuth is controlled by its Board of Directors.
(6) Represents 440,000 shares held of record by Charter Ventures II L.P. and
613,637 shares held of record by Charter Ventures, a California limited
partnership. Mr. A. Barr Dolan and Chavencap, Limited, a British Virgin
Islands corporation, are each general partners of Charter Ventures and
each may be deemed to have voting and investment power with respect to
the shares held by Charter Ventures. The Managing Director of Chavencap,
Limited is Mr. Johnson Cha.
(7) MDS Associes-Neuroscience Inc., a Canada corporation, is the sole general
partner of Neuroscience Partners Limited Partnership and is deemed to
have voting and investment power with respect to the shares held by
Neuroscience Partners Limited Partnership.
(8) Represents an aggregate of 797,971 shares held of record by Mr. Frenzel
and his wife and 108,750 shares of Common Stock that may be acquired upon
exercise of stock options that, as of June 30, 1998, were currently
exercisable or were to become exercisable within 60 days of June 30, 1998
held by Mr. Frenzel. Does not include an aggregate of 27,998 shares held
of record by Mr. Collins on behalf of the Frenzels' minor children.
See footnote (11). Also does not include 33,334 shares held of record by
Glenn Foundation, of which Mr. Frenzel serves as a member of the Board of
Directors. See footnote (4). Mr. Frenzel is President, Chief Executive
Officer and a director of the Company.
(9) Represents an aggregate of 800,000 shares held of record by Dr. Floyd
and/or Mrs. Floyd as trustee(s) of certain trusts for the benefit of Dr.
and Mrs. Floyd and members of their family and 6,250 shares of Common
Stock that may be acquired upon exercise of stock options that, as of
June 30, 1998, were currently exercisable or were to become exercisable
within 60 days of June 30, 1998 held by Dr. Floyd. Dr. Floyd is Chairman
of the Company's Scientific Advisory Board and a consultant to the
Company.
(10) Represents 621,988 shares held of record by Dr. Carney and his wife as
joint tenants and 10,468 shares of Common Stock that may be acquired upon
exercise of stock options that, as of June 30, 1998, were currently
exercisable or were to become exercisable within 60 days of June 30, 1998
held by Dr. Carney. Does not include an aggregate of 60,000 shares held
of record by Mr. Collins as custodian for the Carney's minor children or
118,012 shares of Common Stock transferred to Paul F. Glenn Revocable
Trust in July 1998. See footnotes (4) and (11). Dr. Carney is Chief
Technical Officer and a director of the Company.
(11) Represents 155,000 shares held of record by Mr. Collins and his wife, an
aggregate of 60,000 shares held by Mr. Collins as custodian for the minor
children of Dr. and Mrs. Carney, an aggregate of 27,998 shares held of
record by Mr. Collins on behalf of the minor children of Mr. and Mrs.
Frenzel, 8,437 shares of Common Stock that may be acquired upon exercise
of stock options that, as of June 30, 1998, were currently exercisable or
were to become exercisable within 60 days of June 30, 1998 held by Mr.
Collins, and 2,500 shares held of record by Graham L. Collins, Mr.
Collins' son. Also includes 33,334 shares held of record by Glenn
Foundation, of which Mr. Collins is an executive officer and member of
the Board of Directors. Mr. Collins and Mr. Glenn each has voting and
investment power with respect to the Glenn Foundation Shares.
Accordingly, such shares are also included as securities beneficially
owned by Mr. Glenn. See footnote (4). Mr. Collins is a director of the
Company.
(12) Represents 99,279 shares held of record by Dr. Garland and his wife, and
35,782 shares of Common Stock that may be acquired upon exercise of stock
options that, as of June 30, 1998, were currently exercisable or were to
become exercisable within 60 days of June 30, 1998. Dr. Garland is
Executive Vice President, Pharmaceutical Development of the Company.
56
<PAGE>
(13) Includes 208 shares of Common Stock that may be acquired upon exercise of
stock options that, as of June 30, 1998, were currently exercisable or
were to become exercisable within 60 days of June 30, 1998. Mr. Engles is
a director of the Company. Mr. Engles also owns 200,000 shares of Common
Stock of Cutanix, a corporation the majority of the Common Stock of which
is owned by the Company. The shares owned by Mr. Engles represented 21%
of the outstanding capital stock of Cutanix as of June 30, 1998.
(14) Represents 1,250 shares of Common Stock that may be acquired upon
exercise of a warrant to the extent that such warrant, as of June 30,
1998, was currently exercisable or was to become exercisable within 60
days of June 30, 1998 and 11,920 shares of Common Stock owned of record
by Eiken Invest '97 AS, as to which Dr. Engelsen has shared voting and
dispositive power. Dr. Engelsen disclaims beneficial ownership of the
shares. Does not include 254,747 shares held of record by Teknoinvest IV
ANS, an investment fund managed by Teknoinvest Management AS, of which
Dr. Engelsen is a partner. Dr. Engelsen is a director of the Company.
(15) Includes 7,812 shares of Common Stock that may be acquired upon exercise
of stock options that, as of June 30, 1998, were currently exercisable or
were to become exercisable within 60 days of June 30, 1998. Mr. Vescovi
is a director of the Company.
(16) Includes 190,623 shares of Common Stock that may be acquired upon
exercise of stock options and warrants that, as of June 30, 1998, were
currently exercisable or were to become exercisable within 60 days of
June 30, 1998, 1,584,415 shares held of record by Concord II, and 33,334
shares held of record by Glenn Foundation. See footnotes (2) and (11).
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DESCRIPTION OF CAPITAL STOCK
Immediately following the closing of this offering, the authorized capital
stock of the Company will consist of 33,000,000 shares of Common Stock, $0.001
par value per share, and 3,000,000 shares of preferred stock, $0.001 par value
per share. Of those authorized shares, as of June 30, 1998, and assuming the
conversion of each outstanding share of Preferred Stock into one share of
Common Stock upon the closing of this Offering, there were outstanding
13,843,118 shares of Common Stock held of record by approximately 130
stockholders. In addition, as of June 30, 1998, options to purchase 1,789,782
shares of Common Stock and warrants to purchase 68,603 shares of Common Stock
were outstanding. The Company has agreed in the Underwriting Agreement,
subject to certain exceptions, not to issue or sell any Common Stock or
convertible securities for cash until December 31, 1999, unless certain
conditions are satisfied. See "Underwriting."
COMMON STOCK
After giving effect to this offering, and based on the shares of Common
Stock and options and warrants outstanding on June 30, 1998, the Company will
have 17,656,882 authorized but unissued shares of Common Stock, of which
3,200,950 shares are reserved for issuance pursuant to warrants outstanding as
of June 30, 1998 and pursuant to the Company's 1993 Incentive Plan, 1998
Incentive Plan, Directors Plan and Purchase Plan. All of the Company's
authorized and outstanding shares of Common Stock are "registered" shares,
which means that the holders of such shares are registered in the Company's
stock register maintained by its transfer agent. In the following description,
a "stockholder" is the holder of a registered share of Common Stock. Subject
to preferences that may apply to any preferred stock outstanding at the time,
the holders of outstanding shares of Common Stock are entitled to receive
dividends out of assets legally available therefor at such times and in such
amounts as the Board of Directors may from time to time determine. Each
stockholder is entitled to one vote for each share of Common Stock held on all
matters submitted to a vote of stockholders. Cumulative voting for the
election of directors is not provided for in the Company's Certificate of
Incorporation, which means that the holders of a majority of the shares voted
can elect all of the directors then standing for election. The Common Stock is
not entitled to preemptive rights and is not subject to conversion or
redemption. Upon liquidation, dissolution or winding-up of the Company, the
assets legally available for distribution to stockholders are distributable
ratably among the holders of the Common Stock outstanding at that time, after
payment of liquidation preferences, if any, on any outstanding preferred stock
and payment of other claims of creditors. Each outstanding share of Common
Stock is, and all shares of Common Stock to be outstanding upon completion of
this offering will be, fully paid and nonassessable.
PREFERRED STOCK
Upon the closing of this offering, all outstanding shares of Preferred Stock
will be converted into shares of Common Stock and no shares of Preferred Stock
will remain outstanding. See Note 7 to Notes to Financial Statements. The
Board of Directors is authorized, subject to any limitations prescribed by
Delaware law, to provide for the issuance of up to 3,000,000 shares of new
preferred stock in one or more series, to establish from time to time the
number of shares to be included in each such series, to fix the powers,
designations, preferences and rights of the shares of each wholly unissued
series and any qualifications, limitations or restrictions thereon and to
increase or decrease the number of shares of any such series (but not below
the number of shares of such series then outstanding) without any further vote
or action by the stockholders. The Board of Directors may authorize the
issuance of preferred stock with voting or conversion rights that could
adversely affect the voting power or other rights of the holders of Common
Stock. Thus, the issuance of preferred stock may have the effect of delaying,
deferring or preventing a change in control of the Company. The Company has no
current plan to issue any shares of preferred stock.
WARRANTS
As of June 30, 1998, the Company had outstanding warrants to purchase 68,603
shares of Common Stock at a weighted average per share exercise price of
$2.69. Currently outstanding warrants will remain outstanding following the
closing of this offering and will expire between March 2001 and September
2002.
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ANTI-TAKEOVER PROVISIONS
Delaware Law
Section 203 ("Section 203") of the Delaware General Corporation Law is
generally applicable to corporate takeovers of Delaware corporations that have
a class of voting stock that is listed on a U.S. national securities exchange,
authorized for quotation on the Nasdaq National Market or held of record by
more than 2000 stockholders. Section 203 would apply to the Company if it met
any of the foregoing requirements in the future. Subject to certain exceptions
set forth therein, Section 203 provides that a corporation shall not engage in
any business combination with any "interested stockholder" for a three-year
period following the date that such stockholder becomes an interested
stockholder unless (a) prior to such date, the board of directors of the
corporation approved either the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder, (b) upon
consummation of the transaction that resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced (excluding certain shares) or (c) on or subsequent to such date, the
business combination is approved by the board of directors of the corporation
and by the affirmative vote of at least two-thirds of the outstanding voting
stock that is not owned by the interested stockholder. Except as specified in
Section 203, an interested stockholder is generally defined to include any
person that is the owner of 15% or more of the outstanding voting stock of the
corporation, or is an affiliate or associate of the corporation and was the
owner of 15% or more of the outstanding voting stock of the corporation any
time within three years immediately prior to the relevant date, and the
affiliates and associates of such person. Section 203 generally makes it more
difficult for an interested stockholder to effect various business
combinations with a corporation for a three-year period, although the
stockholders may, by adopting an amendment to the corporation's certificate of
incorporation or bylaws, elect not to be governed by this section, effective
12 months after adoption. The Company's Certificate of Incorporation and
Bylaws do not exclude the Company from the restrictions imposed under Section
203. If applicable to the Company, Section 203 could have the effect of
deterring hostile takeovers or delaying changes in control of the Company,
which could depress the market price of the Common Stock and which could
deprive the stockholders of opportunities to realize a premium on shares of
the Common Stock held by them.
Charter and Bylaw Provisions
The Company's Certificate of Incorporation and Bylaws contain certain
provisions that could discourage potential takeover attempts and make more
difficult attempts by stockholders to change management. The Company's
Certificate of Incorporation provides that, effective upon the earlier of (i)
the closing of an underwritten public offering of shares of the Company's
Common Stock in which such shares are listed on the Swiss Exchange, the New
York Stock Exchange, the American Stock Exchange or the Nasdaq National
Market, and (ii) December 31, 2000, stockholders may not take action by
written consent but may only act at a stockholders' meeting. The Company's
Bylaws provide that special meetings of the stockholders of the Company may
only be called by the Chairman of the Board, the Chief Executive Officer, the
President, a majority of the Board or the holders of a majority of the
Company's outstanding Common Stock.
REGISTRATION RIGHTS
The holders of approximately 10,922,735 outstanding shares of Common Stock
following the consummation of this offering (the "Demand Registrable
Securities") have certain rights with respect to the registration of those
shares under the Securities Act of 1933, as amended (the "Securities Act"). If
requested by holders of at least 40% of the Demand Registrable Securities, the
Company must file a registration statement under the Securities Act covering
all Demand Registrable Securities requested to be included by all holders of
such Demand Registrable Securities. The Company may be required to effect up
to two such registrations. The Company has the right to delay any such
registration for up to 120 days under certain circumstances. All expenses
incurred in connection with such registrations (other than underwriters'
discounts and commissions) and the reasonable costs and disbursements of one
counsel for the selling holders will be borne by the Company.
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These demand registration rights expire ten years after the closing date of
this offering and do not apply to any Demand Registrable Securities proposed
to be sold by a holder if such securities may be sold in a three-month period
without registration pursuant to Rule 144 under the Securities Act.
In addition, if the Company proposes to register any of its shares of Common
Stock under the Securities Act other than in connection with a Company
employee benefit plan or a corporate reorganization, the holders of the Demand
Registrable Securities and holders of approximately an additional 1,867,245
outstanding shares of Common Stock and shares of Common Stock issuable upon
exercise of outstanding warrants following the consummation of this offering
may require the Company to include all or a portion of their shares in such
registration, although the managing underwriter of any such offering has
certain rights to limit the number of shares in such registration. All
expenses incurred in connection with such registrations (other than
underwriters' discounts and commissions) and the reasonable costs and
disbursements of one counsel for the selling holders will be borne by the
Company. These piggyback registration rights expire ten years after the
closing date of this offering and do not apply to any securities proposed to
be sold by a holder if such securities may be sold in a three-month period
without registration pursuant to Rule 144.
Further, holders of at least 20% of all Demand Registrable Securities may
require the Company to register all or any portion of their Demand Registrable
Securities on Form S-3 when such form becomes available to the Company,
subject to certain conditions and limitations. The Company may be required to
effect only one such registration in any twelve-month period. All expenses
incurred in connection with the first two of such registrations (other than
underwriters' or brokers' discounts and commissions) and reasonable costs and
disbursements of one counsel for the selling holders will be borne by the
Company.
TRANSFER OF SHARES
The Company's Common Stock is issued only in registered form, which means
that the holder of such shares is registered in the Company's stock register
maintained by its U.S. transfer agent and registrar. The transfer agent and
registrar for the Company's Common Stock is ChaseMellon Shareholder Services
LLC, 85 Challenger Road, Ridgefield Park, New Jersey 07660, United States.
The shares of Common Stock offered hereby may be traded from time to time in
the Swiss over-the-counter market. See "Underwriting." This market consists of
negotiated transactions from time to time between investors, who may act
through banks or brokers. Trading of the Company's Common Stock in the Swiss
over-the-counter market is expected to be very limited. While indications of
the price at which investors might be willing to buy or sell shares of Common
Stock may be available from time to time to banks, brokers and other financial
institutions over electronic media, and may be available through Bank
Vontobel, this information will not otherwise be available generally to the
public. In addition, this information may not be indicative of the price at
which shares of Common Stock would actually be purchased or sold. Information
as to the price and volume of actual transactions in the Common Stock in the
Swiss over-the-counter market is not publicly reported or available in any
printed or electronic media. Furthermore, the Swiss over-the-counter market is
not subject to specific regulation or regulatory oversight. See "Risk
Factors--No Public Trading Market for Common Stock; Potential Volatility of
Stock Price."
In general, the Common Stock will trade in the Swiss over-the-counter market
only through transfers of beneficial interests held through the Swiss Nominee
Company ("SNOC"). Any investor who holds a certificate representing shares of
Common Stock, rather than such beneficial interests, and who desires to sell
such shares of Common Stock in the Swiss over-the-counter market, will be
required to deposit the certificate with the U.S. transfer agent. The U.S.
transfer agent will register the shares in the name of SNOC in order to make
the share certificates eligible for the Swiss Security Clearing System (SEGA)
and tradeable in the Swiss over-the-counter market and the investor would
receive a beneficial interest therein. Certificates representing shares of
Common Stock held through SNOC will not be issued unless such shares are
withdrawn from SNOC, in which case the shares will not be eligible to trade in
the Swiss over-the-counter market unless redeposited as described above. SNOC
will be the registered owner of all shares of Common Stock that are held by
investors through SNOC.
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Generally, all transfers of Common Stock traded in the Swiss over-the-
counter market will be registered by brokers and other financial institutions
and SEGA in SNOC's books. In this connection SEGA is acting as a clearing
house for transactions involving more than one broker or other financial
institutions. The U.S. transfer agent will not know the beneficial owners of
the Common Stock that is held through SNOC. The brokers and other financial
institutions will be responsible for keeping account of the Common Stock
holdings on behalf of their customers.
Communications by the Company to its stockholders who hold their Common
Stock through SEGA regarding stockholders' meeting and dividend payments will
be transmitted through the U.S. transfer agent to SNOC. SNOC will transmit
these communications to SEGA, who will, upon request of brokers or other
financial institutions, make available such communications to brokers or other
financial institutions for the benefit of the investors.
SNOC will consent or vote with respect to such shares on behalf of
beneficial owners thereof provided it receives appropriate instructions from
brokers or other financial institutions acting on behalf of beneficial owners
in accordance with SNOC's standard rules and procedures and any laws or other
regulations applicable to the Company.
Any dividend or other payments on Common Stock held through SNOC will be
made by the Company to the U.S. transfer agent who upon receipt of such
payments, will credit SNOC for the amount of such payments. Payments by SNOC
to the beneficial owners of Common Stock will be governed by SNOC's and SEGA's
customary practices, and will be the sole responsibility of SNOC subject to
any statutory or regulatory requirements as may be in effect from time to
time. Any dividends will be converted into Swiss Francs and distributed by
SEGA.
The shares of Common Stock sold in this offering will not bear any
restrictive legends or be subject to restrictions on transfer. However, any
persons acting as "underwriters" (within the meaning of the Securities Act)
and, until the date 90 days after the date of this Prospectus, any dealers,
will be required to deliver a current prospectus in the form contained in the
registration statement filed with the U.S. Securities and Exchange Commission
(or the most recent amendment, if any, to such prospectus) in connection with
any offers or sales in the United States. See "Additional Information." Under
the Securities Act, the term "underwriter" includes any person who directly or
indirectly participates in the distribution of the Common Stock. This term is
not limited to the Managers of this offering and other banks, dealers and
securities professionals, but would include investors who resell shares in
transactions that are part of the distribution. An offer or sale may be deemed
to have been made in the United States if (i) certain selling efforts are made
in the United States by or on behalf of the seller, (ii) the shares are
offered to a person in the United States, (iii) the transaction has been
prearranged with a buyer in the United States or (iv) under certain
circumstances if the seller or any person acting on its behalf does not
reasonably believe that the buyer is outside the United States.
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U.S. TAXATION
The following is a general discussion of certain U.S. federal income tax
considerations relevant to Non-U.S. holders (as defined below) of the Common
Stock. This discussion is based upon the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury Regulations, Internal Revenue Service ("IRS")
rulings and judicial decisions now in effect, all of which are subject to
change (possibly with retroactive effect) or different interpretations. There
can be no assurance that the IRS will not challenge one or more of the tax
consequences described herein, and the Company has not obtained, nor does it
intend to obtain, a ruling from the IRS with respect to the U.S. federal
income tax consequences of acquiring, holding or disposing of the Common
Stock. This discussion does not purport to deal with all aspects of U.S.
federal income taxation that may be relevant to a particular holder in light
of the holder's circumstances (for example, persons subject to the alternative
minimum tax provisions of the Code). Also, it is not intended to be wholly
applicable to all categories of investors, some of which (such as dealers in
securities, banks, insurance companies and tax-exempt organizations) may be
subject to special rules. This discussion also does not discuss any aspect of
state, local or foreign law that may be relevant to Non-U.S. Holders. This
discussion is for general information only and is not tax advice. Accordingly,
each investor should consult its own tax adviser as to particular tax
consequences to it of purchasing, holding and disposing of the Common Stock of
the Company, including the applicability and effect of any state, local or
foreign tax laws, and of any proposed changes in applicable laws. See "Swiss
Taxation--Stamp Duties Upon Transfer of Securities" for a description of
certain Swiss securities transfer stamp duties that may be payable upon the
sale of shares of Common Stock.
As used herein, the term "Non-U.S. Holder" means a beneficial owner of
Common Stock that is not, for United States federal income tax purposes, (i) a
citizen or resident (as defined in Section 7701 (b) of the Code) of the United
States, (ii) a corporation, partnership or other entity formed under the laws
of the United States or any political subdivision thereof, (iii) an estate the
income of which is includable in gross income for U.S. federal income tax
purposes regardless of its source or (iv) a trust which is subject to the
supervision of a court within the United States and the control of a United
States person as described in Section 7701 (a) (30) of the Code.
DIVIDENDS
In general, dividends paid to a Non-U.S. Holder of Common Stock will be
subject to withholding of U.S. federal income tax at a 30% rate or such lower
rate as may be specified by an applicable income tax treaty. However,
dividends that are either effectively connected with a trade or business
carried on by the Non-U.S. Holder in the U.S. or, where a relevant income tax
treaty applies, attributable to a permanent establishment in the U.S.
maintained by the Non-U.S. Holder, are generally not subject to the
withholding tax, but instead are subject to United States federal income tax
on a net income basis at applicable graduated individual or corporate rates.
Certain certification and disclosure requirements must be complied with in
order for dividends which are effectively connected with a U.S. trade or
business or attributable to a U.S. permanent establishment to be exempt from
withholding. Any such dividends received by a Non-U.S. Holder that is a
corporation may also, under certain circumstances, be subject to an additional
"branch profits tax" at a 30% rate or such lower rate as may be specified by
an applicable income tax treaty.
To determine the applicability of an income tax treaty providing for a lower
rate of withholding tax, under current rules dividends paid to an address in a
foreign country generally are presumed (absent actual knowledge to the
contrary) to be paid to a resident of such country. Under recently finalized
United States Treasury regulations ("Final Regulations"), however, a Non-U.S.
Holder of Common Stock who wishes to claim the benefit of an applicable treaty
rate for dividends paid after December 31, 1999 would be required to satisfy
applicable certification and other requirements, which would include the
requirement that the Non-U.S. Holder execute and deliver to the Company a form
which contains the holder's name and address or provides certain documentary
evidence issued by foreign governmental authorities to prove residence in the
foreign country. Non-U.S. Holders should consult their tax advisors concerning
the effect of such Final Regulations on an investment in the Common Stock.
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A Non-U.S. Holder of Common Stock that is eligible for a reduced rate of
U.S. withholding tax pursuant to an income tax treaty may obtain a refund of
any amounts withheld in excess of such reduced rate by timely filing an
appropriate claim for a refund with the IRS.
SALE, OR OTHER DISPOSITION OF COMMON STOCK
Except as described below and subject to the discussion concerning backup
withholding, any gain realized by a Non-U.S. Holder on the sale or other
disposition of Common Stock generally will not be subject to U.S. federal
income tax, unless (i) such gain is effectively connected with a trade or
business carried on by the Non-U.S. Holder in the United States or, where a
relevant income tax treaty applies, is attributable to a permanent
establishment in the United States maintained by the Non-U.S. Holder, (ii) the
Non-U.S. Holder is an individual who holds the Common Stock as a capital asset
and is present in the United States for 183 days or more in the taxable year
of the sale or other disposition and certain other conditions are met, (iii)
the Non-U.S. Holder is subject to tax pursuant to the provisions of U.S. tax
law applicable to certain U.S. expatriates (including certain former citizens
or residents of the United States), or (iv) in general, the Company is or has
been a "U.S. real property holding corporation" for U.S. federal income tax
purposes. The Company does not believe that it is currently a "United States
real property holding corporation," or that it will become one in the future.
Special rules may apply to certain Non-U.S. Holders, such as "controlled
foreign corporations", "passive foreign investment companies" and "foreign
personal holding companies", that are subject to special treatment under the
Code. Such entities should consult their own tax advisors to determine the
U.S. federal, state, local and other tax consequences that my be relevant to
them and their owners.
FEDERAL ESTATE TAX
Common Stock owned or treated as owned by an individual Non-U.S. Holder at
the date of death will be included in such individual's gross estate for U.S.
federal estate tax purposes, unless an applicable estate tax treaty applies
and provides for a different result.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company must report annually to the IRS and to each Non-U.S. Holder the
amount of dividends paid to, and the tax withheld with respect to, each Non-
U.S. Holder. These reporting requirements apply regardless of whether
withholding was reduced or eliminated by an applicable income tax treaty.
Copies of these information returns may also be made available, under the
provisions of a specific treaty or agreement, to the tax authorities of the
country in which the Non-U.S. Holder resides.
Under current rules, U.S. backup withholding tax (which is generally imposed
at a 31% rate) generally will not apply to dividends paid on Common Stock to a
Non-U.S. Holder at an address outside of the U.S. (unless the payor has
knowledge that the payee is a U.S. person). Backup withholding and information
reporting generally will apply to dividends paid to a Non-U.S. Holder at an
address in the U.S., if such holder fails to establish an exemption or to
provide certain other information to the payor. Under the Final Regulations,
however, a Non-U.S. Holder that fails to certify its Non-U.S. Holder status in
accordance with the requirements of the Final Regulations may be subject to
U.S. backup withholding tax on payments of dividends. Non-U.S. Holders should
consult their tax advisors concerning the effect, if any, of such Final
Regulations on an investment in the Common Stock.
The payment of the proceeds from the sale or other disposition Common Stock
to or through the U.S. office of any broker, U.S. or foreign, will be subject
to information reporting and possible backup withholding unless the Non-U.S.
Holder certifies to the broker as to its Non-U.S. Holder status under
penalties of perjury or otherwise establishes an exemption, provided that the
broker does not have actual knowledge that the holder is a U.S. Holder or that
the conditions of any other exemption are not, in fact, satisfied. The payment
of the proceeds from the sale or other disposition of Common Stock to or
through a non-U.S. office of a non-U.S. broker that is
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not a U.S. related person will not be subject to information reporting or
backup withholding. For this purpose, a "U.S. related person" is (i) a
"controlled foreign corporation" for U.S. federal income tax purposes or (ii)
a foreign person 50% or more of whose gross income from all sources for the
three-year period ending with the close of its taxable year preceding the
payment (or for such part of the period that the broker has been in existence)
is derived from activities that are effectively connected with the conduct of
a U.S. trade or business.
In the case of the payment of proceeds from the disposition of the Common
Stock to or through a non-U.S. office of a broker that is either a U.S. person
or a U.S. related person, information reporting is required on the payment
unless the broker holds documentary evidence that the owner is a Non-U.S.
Holder and the broker has no knowledge to the contrary.
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a refund or a credit against such Non-U.S.
Holder's U.S. federal income tax liability, provided that the requisite refund
or tax return procedures are followed.
SWISS TAXATION
The following is a summary of certain Swiss tax matters that may be relevant
with respect to the acquisition, ownership and disposition of Common Stock by
a Non-Swiss Holder. The term "Non-Swiss Holder" means a beneficial owner of
Common Stock that (i) is not a resident of Switzerland, (ii) during the tax
year has not engaged in a trade or business through a permanent establishment
within Switzerland or (iii) is not otherwise subject to taxation in
Switzerland for other reasons. The summary does not relate to persons in the
business of buying and selling shares or other securities and does not address
every potential tax consequence of an investment in the Common Stock under
Swiss tax laws. The summary is of general nature only and does not constitute
tax advice. Prospective purchasers of Common Stock are advised to consult
their own tax advisors with respect to tax consequences in Switzerland. The
summary is based on the tax laws of Switzerland as in effect on the date
hereof.
GAIN ON SALE OF COMMON STOCK
A gain realized on the sale of Common Stock by a Non-Swiss Holder is not
subject to income tax in Switzerland.
STAMP DUTY UPON TRANSFER OF COMMON STOCK
The transfer of Common Stock of the Company may be subject to Swiss security
transfer stamp tax (Umsatzabgabe) of 0.3%, calculated on the sale proceeds, if
it is made through or with a Swiss bank or other Swiss securities dealer, as
defined in the Swiss Federal Stamp Tax Act.
WITHHOLDING TAX ON DIVIDENDS AND DISTRIBUTIONS
Dividends paid and similar cash or in kind distributions made by the Company
to a stockholder are not subject to Swiss Federal Withholding Tax.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the Common Stock of the
Company and the Company does not anticipate that an active trading market for
the Common Stock will develop as a result of this offering. Sales of Common
Stock of the Company could adversely affect the prevailing market price of the
Common Stock and the ability of the Company to raise equity capital in the
future. See "Risk Factors--Shares Eligible for Future Sale" and "--No Public
Trading Market for Common Stock; Potential Volatility of Stock Price."
Upon completion of this offering, the Company will have outstanding
15,343,118 shares of Common Stock, assuming no exercise of options and
warrants outstanding as of June 30, 1998. Of these shares, the 1,500,000
shares sold in this offering may be resold without restriction under the
Securities Act (unless purchased by "affiliates" of the Company as that term
is defined in Rule 501 under the Securities Act), except that underwriters,
and for 90 days after the date of this Prospectus, dealers, are required to
deliver a prospectus in connection with offers or sales in the United States.
See "Description of Capital Stock--Transfer of Shares." Of the remaining
13,843,118 shares held by existing stockholders (the "Restricted
Shares"),13,510,451 shares will be subject to lock-up agreements prohibiting
their sale for 180 days after the U.S. Registration Statement Effective Date,
as described below. These shares will generally be eligible for public sale
pursuant to Rule 144 or Rule 701 under the Securities Act, subject to such
following the expiration of the lock-up agreements. Of the Restricted Shares,
an aggregate of 9,902,522 shares are held by affiliates of the Company and are
subject to certain volume and other restrictions set forth in Rule 144. In
addition, it is possible that under certain circumstances, Restricted Shares
could be sold outside of the United States in reliance on Regulation S under
the Securities Act.
The Company's executive officers and directors and other existing
stockholders of the Company holding an aggregate of 13,510,451 Restricted
Shares have agreed that they will not, for a period of 180 days following the
U.S. Registration Statement Effective Date, sell or otherwise transfer or
dispose of any shares of Common Stock. All such securities held by such other
stockholders will be released from the foregoing restrictions at the end of
such 180 day period. Bank Vontobel may release any stockholder from the
foregoing restrictions, in whole or in part, at an earlier date, in its
discretion.
Under Rule 144 as currently in effect, beginning 90 days after the date of
this Prospectus, a person (or persons whose shares are aggregated) who has
beneficially owned Restricted Shares for at least one year (including the
holding period of any prior owner except an affiliate) would be entitled to
sell within any three-month period a number of shares that does not exceed the
greater of: (i) 1% of the number of shares of Common Stock then outstanding
(which will equal approximately 153,431 shares immediately after this
offering); or (ii) the average weekly trading volume of the Common Stock
during the four calendar weeks preceding the filing of a Form 144 with respect
to such sale. Sales under Rule 144 are also subject to certain manner of sale
provisions and notice requirements and to the availability of current public
information about the Company. Under Rule 144(k), a person who is not deemed
to have been an affiliate of the Company at any time during the 90 days
preceding a sale, and who has beneficially owned the shares proposed to be
sold for at least two years (including the holding period of any prior owner
except an affiliate), is entitled to sell such shares without complying with
the manner of sale, public information, volume limitation or notice provisions
of Rule 144. Rule 701 permits resales of certain shares, beginning 90 days
after the date of this Prospectus, in reliance upon Rule 144 but without
compliance with certain restrictions, including the holding period
requirement, of Rule 144. Any employee, officer or director of or consultant,
independent contractor or adviser to the Company who purchased his or her
shares pursuant to a written compensatory plan or contract may be entitled to
rely on the resale provisions of Rule 701.
Soon after the date of this Prospectus, the Company intends to file a
registration statement under the Securities Act registering shares of Common
Stock reserved for issuance under the Company's 1993 Incentive Plan, 1998
Incentive Plan and Directors Plan. Based on the number of shares subject to
outstanding options at June 30, 1998 and currently reserved for issuance under
all such plans, such registration statement would cover approximately
3,007,347 shares. Such registration statement will automatically become
effective upon filing.
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Accordingly, shares registered under such registration statement will, subject
to Rule 144 volume limitations applicable to affiliates of the Company, be
available for sale in the open market immediately after the expiration of
applicable lock-up periods. Also, after giving effect to this offering,
holders of 12,789,980 shares of Common Stock and warrants exercisable for
Common Stock are entitled to certain rights with respect to registration of
such shares of Common Stock for offer and sale to the public. See "Description
of Capital Stock--Registration Rights."
66
<PAGE>
UNDERWRITING
The Managers named below (the "Managers"), acting through their Global
Coordinator, Bank Vontobel, have severally agreed, subject to the terms and
conditions of an Underwriting Agreement (the "Underwriting Agreement") with
the Company to purchase from the Company the number of shares of Common Stock
set forth opposite their respective names below.
<TABLE>
<CAPTION>
NUMBER OF
MANAGERS SHARES
-------- ---------
<S> <C>
Bank J. Vontobel & Co. AG....................................... 1,050,000
Vector Securities International, Inc............................ 225,000
Vontobel Securities Ltd (New York branch)....................... 225,000
---------
Total....................................................... 1,500,000
=========
</TABLE>
The Managers have agreed, subject to the terms and conditions set forth in
the Underwriting Agreement, to purchase all of the shares of Common Stock
being sold pursuant to the Underwriting Agreement if any of the shares of
Common Stock being sold pursuant to the Underwriting Agreement are purchased.
Bank Vontobel has advised the Company that the Managers propose to offer the
shares of Common Stock offered hereby initially at the offering price set
forth on the cover page of this Prospectus. After the initial offering of the
Common Stock, the offering price may be changed.
This Prospectus is intended for use only in connection with offers and sales
of Common Stock in the United States and any shares initially offered outside
the United States that are thereafter sold or resold in the United States by
underwriters or, for a period of 90 days after the date of this Prospectus,
dealers (as such terms are defined in the Securities Act). The initial offers
and sales of Common Stock outside the United States are not being registered
under the Securities Act and this Prospectus is not to be sent or given to any
person outside the United States.
The Company has agreed to indemnify the Managers against certain liabilities
which may be incurred in connection with the offering of the Common Stock,
including liabilities under the Securities Act and other applicable securities
laws.
The Managers have informed the Company that they do not expect to confirm
sales of Common Stock offered hereby to any accounts over which they exercise
discretionary authority.
Prior to this offering, there has been no public market for the Common
Stock. Accordingly, the offering price for the shares has been determined by
negotiation among the Company and the Global Coordinator. In determining such
price, consideration has been given to various factors, including market
conditions for initial public offerings, the history of and prospects for the
Company's business, the Company's past and present operations, the present
state of the Company's development, certain financial information of the
Company, an assessment of the Company's management, the market for securities
of companies in businesses similar to those of the Company, the general
condition of the securities markets and other factors deemed relevant. There
can be no assurance that the offering price will correspond to any price at
which the Common Stock may trade subsequent to the offering.
It is anticipated that most, and perhaps all, of the Common Stock offered
hereby will be sold outside of the United States to a limited number of
institutional and private investors. The shares of Common Stock offered hereby
may be traded from time to time in the Swiss over-the-counter market. Bank
Vontobel has advised the Company that it presently intends to make a market in
the Common Stock. Bank Vontobel is not obligated, however, to make a market in
the Common Stock and any such market making may be discontinued at any time,
without notice, at the sole discretion of Bank Vontobel. In addition, it is
not anticipated that this market-making will result in active trading market
for the Common Stock. Accordingly, no assurance can be given as to the
liquidity of, or trading markets for, the shares of Common Stock offered
hereby. See "Risk Factors--No Public Trading Market for Common Stock;
Potential Volatility of Stock Price."
67
<PAGE>
The Company's executive officers and directors and certain other existing
stockholders of the Company have agreed that they will not, for a period of
180 days following the U.S. Registration Statement Effective Date, sell or
otherwise transfer or dispose of any shares of Common Stock. Bank Vontobel may
release any stockholder from the foregoing restrictions, in whole or in part,
at an earlier date, in its discretion.
The Company and Bank Vontobel have entered into an agreement in which they
have confirmed their mutual intent to undertake an underwritten public
offering of Centaur's Common Stock on the Swiss Exchange, with Bank Vontobel
acting as global coordinator, as soon as market conditions permit. In
connection therewith, Centaur has agreed that, subject to certain exceptions,
it will not undertake any other equity financing whose primary purpose is to
raise capital prior to December 31, 1999 unless Bank Vontobel is the lead
underwriter or placement agent for the financing, or otherwise consents to the
transaction. There can be no assurances as to whether or when any future
public offering or listing might occur or as to the terms of any such
offering.
The Company has agreed with the Managers not to issue any of its authorized
but unissued shares of Common Stock, or securities convertible into or
exchangeable or exercisable for its Common Stock, during the period from the
U.S. Registration Statement Effective Date through December 31, 1999 other
than (i) pursuant to the exercise of currently outstanding options and
warrants and conversion of currently outstanding convertible securities, (ii)
pursuant to the exercise of options granted, or the purchase of shares, under
the Company's 1998 Incentive Plan, Directors Plan or Purchase Plan, (iii) in
connection with any acquisition of a company, technology or product, or any
research, development, manufacturing or marketing collaboration, or any other
transaction where the consideration for the issuance of the shares is other
than cash, or (iv) up to 100,000 shares for miscellaneous purposes, unless (a)
the issuance is approved by Bank J. Vontobel & Co AG, such approval not to be
unreasonably withheld, (b) the issuance is approved by a majority of the
Company's stockholders present, in person or by proxy, at a stockholder
meeting at which a quorum is present, or by the written consent of holders of
a majority of the Company's outstanding Common Stock, (c) the Company's Common
Stock is then listed, or designated for listing on notice of issuance, on the
Nasdaq National Market, the New York Stock Exchange, the American Stock
Exchange, the Swiss Exchange or the Neuer Market, or (d) the Company's
stockholders are provided with the right to purchase their pro rata share of
the issuance.
68
<PAGE>
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Fenwick & West LLP, Palo Alto,
California. Certain Swiss legal matters in connection with this offering will
be passed upon for the Company by Lenz & Staehelin, Zurich, Switzerland.
Certain legal matters in connection with this offering will be passed upon for
the Managers by Shearman & Sterling, Frankfurt, Germany. A general
partnership, of which certain members of the firm of Fenwick & West LLP are
partners, owns an aggregate of 50,000 shares of Common Stock of the Company.
EXPERTS
The financial statements of Centaur Pharmaceuticals, Inc. as of December 31,
1995, 1996, and 1997 and for each of the three years in the period ended
December 31, 1997, appearing in this prospectus and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon appearing elsewhere herein, and are included in reliance
upon such report given upon the authority of such firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the U.S. Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act
with respect to the shares of Common Stock offered hereby. This Prospectus
does not contain all of the information set forth in the Registration
Statement and the exhibits thereto. For further information with respect to
the Company and the Common Stock offered hereby, reference is made to the
Registration Statement and the exhibits thereto. Statements contained in this
Prospectus regarding the contents of any contract or any other document to
which reference is made are not necessarily complete, and, in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. A copy of the Registration Statement and the
exhibits thereto may be inspected without charge at the offices of the
Commission at Judiciary Plaza, 450 Fifth Street, Washington, D.C. 20549, and
copies of all or any part of the Registration Statement may be obtained from
the Public Reference Section of the Commission, Washington, D.C. 20549 upon
the payment of the fees prescribed by the Commission. The Commission maintains
a Web site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants, such as the Company,
that file electronically with the Commission.
The Company intends to furnish its stockholders with an annual report
containing audited financial statements and a report thereon by its
independent auditors, and to make available to its stockholders its interim
reports for each of the first three quarters of its fiscal year containing
unaudited financial information.
69
<PAGE>
CENTAUR PHARMACEUTICALS, INC.
FINANCIAL STATEMENTS
EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1997
WITH REPORT OF INDEPENDENT AUDITORS
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors......................... F-2
Financial Statements
Balance Sheets.......................................................... F-3
Statements of Operations................................................ F-4
Statement of Stockholders' Equity....................................... F-5
Statements of Cash Flows................................................ F-6
Notes to Financial Statements........................................... F-7
</TABLE>
F-1
<PAGE>
ERNST & YOUNG LLP
1451 California Avenue
Palo Alto, California U.S.A. 94304
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Centaur Pharmaceuticals, Inc.
We have audited the accompanying balance sheets of Centaur Pharmaceuticals,
Inc. as of December 31, 1995, 1996 and 1997, and the related statements of
operations, stockholders' equity, and cash flows for each of the three years
in the period ended December 31, 1997. 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 of the United States of America. 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 Centaur Pharmaceuticals,
Inc. at December 31, 1995, 1996 and 1997, and the results of its operations
and its cash flows for each of the three years in the period ended December
31, 1997 in conformity with generally accepted accounting principles of the
United States of America.
/s/ Ernst & Young LLP
Palo Alto, California, U.S.A.
April 28, 1998, except for Note 9 as to which the date is
September 29, 1998
F-2
<PAGE>
CENTAUR PHARMACEUTICALS, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, JUNE EQUITY AT
------------------------- 30, JUNE 30, 1998
ASSETS 1995 1996 1997 1998 (Note 9)
------ ------- ------- ------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents. $ 2,801 $ 5,699 $ 1,469 $ 6,010
Short-term investments.... 5,898 5,267 12,164 10,718
Contract revenue
receivable............... 832 976 84 33
Prepaid expenses.......... 115 31 343 189
Other current assets...... 180 217 329 404
------- ------- ------- -------
Total current assets.... 9,826 12,190 14,389 17,354
Property and equipment, net. 1,158 3,140 9,635 11,496
Other assets, net of
accumulated amortization of
$13, $34 and $47 as of
December 31, 1995, 1996 and
1997, respectively, and $53
as of June 30, 1998........ 74 77 219 456
------- ------- ------- -------
$11,058 $15,407 $24,243 $29,306
======= ======= ======= =======
LIABILITIES AND
STOCKHOLDERS' EQUITY
---------------------
Current liabilities:
Accounts payable.......... $ 354 $ 375 $ 1,675 $ 654
Accrued compensation...... 58 99 169 233
Other accrued liabilities. 1,103 1,364 1,062 1,166
Short-term portion of
obligations under capital
lease.................... 112 118 183 108
Current portion of long
term debt................ -- -- -- 1,684
------- ------- ------- -------
Total current
liabilities............ 1,627 1,956 3,089 3,845
Deferred revenue............ 586 1,788 84 1,572
Long-term portion of
obligations under capital
lease...................... 343 210 -- --
Long-term debt.............. -- -- -- 6,975
Commitments and
contingencies
Redeemable convertible
preferred stock, $0.001 par
value; 10,922,735 shares
authorized; issuable in
series; 8,722,735 shares
issued and outstanding at
December 31, 1995 and 1996
and 10,922,735 shares
issued and outstanding at
December 31, 1997 and June
30, 1998, aggregate
redemption value of
$11,810,242 at December 31,
1995 and 1996 and
$28,310,242 at December 31,
1997 and June 30, 1998 (pro
forma at June 30, 1998:
none issued and
outstanding)............... 11,698 11,698 28,105 28,105 $ --
Stockholders' equity:
Preferred stock, $0.001
par value, none
authorized, issued and
outstanding at December
31, 1995, 1996, 1997 and
June 30, 1998 (pro forma
at June 30, 1998:
3,000,000 shares
authorized, none issued
and outstanding)......... -- -- -- -- --
Common stock, $0.001 par
value; 18,200,000 shares
authorized; 2,403,103,
2,649,303 and 2,901,336
shares issued and
outstanding at December
31, 1995, 1996 and 1997,
respectively, and
2,920,383 shares issued
and outstanding at June
30, 1998 (pro forma at
June 30, 1998: 33,000,000
shares authorized,
13,843,118 shares issued
and outstanding)......... 2 3 3 3 14
Additional paid-in
capital.................. 29 114 2,457 4,680 32,774
Deferred compensation..... -- (42) (1,945) (3,542) (3,542)
Accumulated other
comprehensive income..... 37 (1) 1 (7) (7)
Accumulated deficit....... (3,264) (319) (7,551) (12,325) (12,325)
------- ------- ------- ------- -------
Total stockholders'
equity (net capital
deficiency)............ (3,196) (245) (7,035) (11,191) $16,914
------- ------- ------- ------- =======
$11,058 $15,407 $24,243 $29,306
======= ======= ======= =======
</TABLE>
See accompanying notes
F-3
<PAGE>
CENTAUR PHARMACEUTICALS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------- ----------------------
1995 1996 1997 1997 1998
----------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenue from
collaborative
agreements and grants.. $ 7,875 $ 12,743 $ 9,573 $ 6,387 $ 3,624
Operating expenses:
Research and
development.......... 5,490 7,854 15,646 7,817 7,032
General and
administrative....... 1,385 2,306 2,266 1,486 1,526
----------- ---------- ---------- ---------- ----------
Total operating
expenses............... 6,875 10,160 17,912 9,303 8,558
----------- ---------- ---------- ---------- ----------
Income (loss) from
operations............. 1,000 2,583 (8,339) (2,916) (4,934)
Interest and other
income................. 565 438 1,145 551 391
Interest and other
expense................ (74) (76) (38) (21) (231)
----------- ---------- ---------- ---------- ----------
Net income (loss)....... $ 1,491 $ 2,945 $ (7,232) $ (2,386) $ (4,774)
=========== ========== ========== ========== ==========
Net income (loss) per
share:
Basic................. $ 0.62 $ 1.15 $ (2.64) $ (0.88) $ (1.64)
Diluted............... $ 0.13 $ 0.24 $ (2.64) $ (0.88) $ (1.64)
Shares used in computing
net income (loss) per
share:
Basic................. 2,403,062 2,551,003 2,742,431 2,710,904 2,906,018
Diluted............... 11,602,067 12,513,699 2,742,431 2,710,904 2,906,018
Pro forma net loss per
share, basic and
diluted................ $ (0.55) $ (0.35)
Shares used in computing
pro forma net loss per
share, basic and
diluted................ 13,243,111 13,828,753
</TABLE>
See accompanying notes
F-4
<PAGE>
CENTAUR PHARMACEUTICALS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ACCUMULATED TOTAL
COMMON STOCK ADDITIONAL DEFERRED OTHER STOCK-
---------------- PAID-IN COMPEN- COMPREHENSIVE ACCUMULATED HOLDERS'
SHARES AMOUNT CAPITAL SATION INCOME DEFICIT EQUITY
--------- ------ ---------- -------- ------------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1994 (unaudited)....... 2,401,749 $ 2 $ 28 $ -- $-- $ (4,755) $ (4,725)
Unrealized gain on
available-for-sale
securities of $37...... -- -- -- -- 37 -- 37
Net income for the year
ended December 31,
1995................... -- -- -- -- -- 1,491 1,491
--------
Comprehensive income.... 1,528
--------
Issuance of common stock
on exercise of stock
options by former
employees.............. 1,354 -- 1 -- -- -- 1
--------- --- ------ ------- ---- -------- --------
Balance at December 31,
1995................... 2,403,103 2 29 -- 37 (3,264) (3,196)
Unrealized loss on
available-for-sale
securities of $13, net
of reclassification
adjustment for gains
included in net income
of $25................. -- -- -- -- (38) -- (38)
Net income for the year
ended December 31,
1996................... -- -- -- -- -- 2,945 2,945
--------
Comprehensive income.... 2,907
--------
Issuance of common stock
on exercise of stock
options by employees,
former employees and a
board of directors
member................. 243,470 1 34 -- -- -- 35
Issuance of common stock
for services rendered.. 2,730 -- 1 -- -- -- 1
Deferred compensation
related to certain
options granted to
employees and
consultants............ -- -- 50 (50) -- -- --
Amortization of deferred
compensation........... -- -- -- 8 -- -- 8
--------- --- ------ ------- ---- -------- --------
Balance at December 31,
1996................... 2,649,303 3 114 (42) (1) (319) (245)
Unrealized gain on
available-for-sale
securities of $1, net
of reclassification
adjustment for gains
included in net income
of $1.................. -- -- -- -- 2 -- 2
Net loss for the year
ended December 31,
1997................... -- -- -- -- -- (7,232) (7,232)
--------
Comprehensive loss...... (7,230)
--------
Issuance of common stock
on exercise of stock
options by employees,
former employees and a
board of directors
member................. 252,033 -- 50 -- -- -- 50
Deferred compensation
related to certain
options and warrants
granted to employees
and consultants -- -- 2,293 (2,293) -- -- --
Amortization of deferred
compensation........... -- -- -- 390 -- -- 390
--------- --- ------ ------- ---- -------- --------
Balance at December 31,
1997................... 2,901,336 3 2,457 (1,945) 1 (7,551) (7,035)
Unrealized loss on
available for sale
securities of $1, net
of reclassification
adjustment for gains
included in net income
of $7 (unaudited) ..... -- -- -- -- (8) -- (8)
Net loss for the period
ended June 30, 1998
(unaudited)............ -- -- -- -- -- (4,774) (4,774)
--------
Comprehensive loss
(unaudited)............ -- -- -- -- -- -- (4,782)
--------
Issuance of common stock
on exercise of stock
options (unaudited).... 19,047 -- 12 -- -- -- 12
Deferred compensation
related to certain
options and warrants
granted to employees
and consultants
(unaudited)............ -- -- 2,211 (2,211) -- -- --
Amortization of deferred
compensation
(unaudited)............ -- -- -- 614 -- -- 614
--------- --- ------ ------- ---- -------- --------
Balance at June 30, 1998
(unaudited)............ 2,920,383 $ 3 $4,680 $(3,542) $ (7) $(12,325) $(11,191)
========= === ====== ======= ==== ======== ========
</TABLE>
See accompanying notes
F-5
<PAGE>
CENTAUR PHARMACEUTICALS, INC.
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------- ----------------
1995 1996 1997 1997 1998
------ -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)............... $1,491 $ 2,945 $ (7,232) $(2,386) $(4,774)
Adjustments to reconcile net
loss to net cash provided by
(used in) operating activities:
Depreciation and amortization... 296 724 1,060 496 604
Amortization of deferred
compensation................... -- 8 390 179 614
Changes in assets and
liabilities:
Contract revenue receivable, net
of allowance................... (832) (144) 892 265 51
Prepaid expenses and other
current assets................. (167) 47 (424) (570) 79
Other assets.................... (9) (15) (154) (38) (243)
Accounts payable................ 57 21 1,300 1,235 (1,021)
Accrued compensation............ 24 41 70 55 64
Other accrued liabilities....... 1,082 261 (302) (99) 104
Deferred revenue................ 586 1,202 (1,704) 300 1,488
Long-term liabilities........... (78) 6 (69) -- --
------ -------- -------- ------- -------
Net cash provided by (used in)
operating activities........... 2,450 5,096 (6,173) (563) (3,034)
------ -------- -------- ------- -------
INVESTING ACTIVITIES
Purchase of property and
equipment...................... (706) (2,731) (7,542) (1,385) (2,459)
Purchase of available-for-sale
securities..................... (8,916) (12,403) (34,219) (23,629) (7,671)
Maturity and sale of available-
for-sale securities............ 3,018 13,034 27,322 9,272 9,109
------ -------- -------- ------- -------
Net cash used in investing
activities..................... (6,604) (2,100) (14,439) (15,742) (1,021)
------ -------- -------- ------- -------
FINANCING ACTIVITIES
Proceeds from issuances of
common stock................... -- 36 50 15 12
Net proceeds from issuance of
preferred stock................ -- -- 16,407 16,337 --
Principal payments on asset
financing arrangements......... (133) (134) (75) (70) (75)
Proceeds from debt financing ... -- -- -- -- 8,878
Principal repayments on debt
financing...................... -- -- -- -- (219)
------ -------- -------- ------- -------
Net cash (used in) provided by
financing activities........... (133) (98) 16,382 16,282 8,596
------ -------- -------- ------- -------
Net (decrease) increase in cash
and cash equivalents........... (4,287) 2,898 (4,230) (23) 4,541
Cash and cash equivalents at
beginning of period............ 7,088 2,801 5,699 5,699 1,469
------ -------- -------- ------- -------
Cash and cash equivalents at end
of period...................... $2,801 $ 5,699 $ 1,469 $ 5,676 $ 6,010
====== ======== ======== ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Interest paid................... $ 74 $ 59 $ 38 $ 20 $ 231
====== ======== ======== ======= =======
Income taxes paid (refund)...... $ -- $ 56 $ 515 $ 475 $ (498)
====== ======== ======== ======= =======
</TABLE>
See accompanying notes
F-6
<PAGE>
CENTAUR PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
Centaur Pharmaceuticals, Inc. (the "Company") was incorporated in the State
of Delaware on March 17, 1992. The Company was founded to commercialize
proprietary pharmaceutical technology with broad potential applications in
neurodegenerative diseases and other disorders.
The financial statements have been prepared in accordance with generally
accepted accounting principles of the United States of America ("U.S.") and
are stated in U.S. dollars ("$").
The Company changed its fiscal year end from June 30 to December 31,
effective December 31, 1997. The accompanying financial statements
retroactively reflect this change in year end.
The Company's policy is to consolidate majority-owned subsidiaries in
accordance with Statement of Financial Accounting Standards No. 94. All
significant intercompany transactions are eliminated on consolidation.
Interim Financial Information
The financial information at June 30, 1998 and for the six months ended June
30, 1997 and 1998 is unaudited but, in the opinion of management, has been
prepared on the same basis as the annual financial statements and includes all
adjustments (consisting only of normal recurring adjustments) that the Company
considers necessary for a fair presentation of the financial position at such
date and the operating results and cash flows for such periods. Results for
the interim period are not necessarily indicative of the results to be
expected for any subsequent six-month period nor for the entire year.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with remaining
maturities of three months or less at the date of purchase to be cash
equivalents. Investments with maturities of less than one year from the
balance sheet date and with remaining maturities greater than three months at
the date of purchase are considered short-term investments. At December 31,
1995, 1996 and 1997 and June 30, 1998, cash equivalents consisted of money
market accounts.
The Company invests its excess cash balances in marketable securities with
maturities of two years or less. These investments primarily consist of
corporate debt securities.
F-7
<PAGE>
CENTAUR PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
Management determines the appropriate classification of debt securities in
accordance with Statement of Financial Accounting Standard No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," at the
time of purchase and reevaluates such designation as of each balance sheet
date. During 1995, 1996 and 1997, all investments were classified as
available-for-sale securities and are carried at fair value, with the
unrealized gains and losses reported as a component of accumulated other
comprehensive income in stockholders' equity. At December 31, 1995, 1996 and
1997 and June 30, 1998, the fair value of investments approximates cost. The
amortized cost of debt securities in this category is adjusted for
amortization of premiums and accretion of discounts to maturity. Such
amortization is included in interest income. Realized gains and losses and
declines in value judged to be other-than-temporary on available-for-sale
securities are included in interest income or expense and have been immaterial
in all periods presented. The cost of securities sold is based on the specific
identification method. Interest and dividends on securities classified as
available-for-sale are included in interest.
Concentrations of Credit Risk
Cash, cash equivalents and short-term investments are financial instruments
which potentially subject the Company to concentrations of risk. Company
policy limits, among other things, the amount of credit exposure to any one
issuer and to any one type of investment, other than securities issued or
guaranteed by the U.S. government.
The net revenue from collaborative agreements and the related contract
revenue receivable at December 31, 1995, 1996 and 1997 and June 30, 1998 are
earned primarily under two collaborative arrangements the Company has entered
into. One of these collaborations was terminated in March 1998. The Company
has no collateral as security for these receivables.
Revenue Recognition
Revenue under research collaborations is recorded as earned based on the
performance requirements of the contracts. All payments received under the
collaborations are nonrefundable and no payments are reimbursable if the
research effort is unsuccessful. Signing payments related to precontract
performance by the Company are recognized as revenue when received. Signing
and milestone payments that are not dependent on future performance are
recognized when the funding party agrees the contract requirements have been
met. Research and development support payments are recognized ratably as the
work is performed. Deferred revenue represents amounts received in advance of
recognition.
Research and Development Costs
Research and development costs are charged to operations as incurred.
Stock-Based Compensation
As permitted by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), the Company has
elected to continue to account for stock issued or options granted to
employees under its 1993 Equity Incentive Stock Option Plan in accordance with
the provisions of Accounting Principles Board No. 25, "Accounting for Stock
Issued to Employees" ("APB 25") and related interpretations. For issuances or
grants to all others, stock-based compensation expense is measured using the
fair value method described in SFAS 123 and recorded in the accompanying
financial statements. Pro forma disclosures as required by SFAS 123 are
included in Note 7.
F-8
<PAGE>
CENTAUR PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
Property and Equipment
Property and equipment is stated at cost. Depreciation is calculated using
the straight-line method over the five year estimated useful lives of the
assets. Equipment held under capital leases is amortized using the straight-
line method over the shorter of the lease term or estimated useful life of the
asset. Leasehold improvements are amortized using the straight-line method
over the estimated useful lives of the assets or the term of the lease,
whichever is shorter.
Income (Loss) Per Share
In December 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128").
Under the provisions of SFAS 128, basic earnings per share is calculated based
on the weighted-average number of common shares outstanding during the period.
Diluted earnings per share gives effect to the dilutive effect of common stock
equivalents consisting of stock options and warrants (calculated using the
treasury stock method and the proposed price per share to the public).
A reconciliation of shares used in the calculation is as follows:
<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------------------- --------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Basic:
Weighted-average
shares outstanding.. 2,403,062 2,551,003 2,742,431 2,710,904 2,906,018
Diluted:
Dilutive effect of
stock options and
warrants............ 476,270 1,239,961 -- -- --
Dilutive effect of
redeemable
convertible
preferred stock..... 8,722,735 8,722,735 -- -- --
---------- ---------- ---------- --------- ----------
11,602,067 12,513,699 2,742,431 2,710,904 2,906,018
========== ========== =========
Pro forma basic and
diluted:
Conversion of
redeemable
convertible
preferred stock..... 10,500,680 10,922,735
---------- ----------
13,243,111 13,828,753
========== ==========
</TABLE>
Options and warrants to purchase 1,584,040, 1,624,640 and 1,858,385 shares
of the Company's common stock at December 31, 1997 and June 30, 1997 and 1998,
respectively, as well as 10,922,735, 10,913,428 and 10,922,735 shares of the
Company's common stock issuable upon conversion of the redeemable convertible
preferred stock at December 31, 1997 and June 30, 1997 and 1998, were excluded
from the computation of diluted net loss per share as they had an antidilutive
effect.
The computation of pro forma net loss per share includes shares issuable
upon the conversion of outstanding shares of redeemable convertible preferred
stock (using the as-if converted method) immediately prior to the closing of
the proposed offering described in Note 9.
F-9
<PAGE>
CENTAUR PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
Impairment of Long-Lived Assets
In accordance with the provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" ("SFAS 121"), the Company reviews long-
lived assets, including property and equipment, for impairment whenever events
or changes in business circumstances indicate that the carrying amount of the
assets may not be fully recoverable. Under SFAS 121, an impairment loss would
be recognized when estimated undiscounted future cash flows expected to result
from the use of the asset and its eventual disposition is less than its
carrying amount. Impairment, if any, is assessed using discounted cash flows.
Through June 30, 1998 there have been no such losses.
Recent Accounting Pronouncements
As of January 1, 1998, the Company adopted the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes new rules
for the reporting and display of comprehensive income and its components;
however, the adoption of this Statement had no impact on the Company's results
of operations or financial condition. SFAS 130 requires unrealized gains or
losses on the Company's available-for-sale securities and foreign currency
translation adjustments, which prior to adoption were reported separately in
stockholders' equity, to be included in other comprehensive income. Prior year
financial statements have been reclassified to conform to the requirements of
SFAS 130. During the six months ended June 30, 1997 and 1998, total
comprehensive loss amounted to $2,385,000 and $4,782,000, respectively.
Effective January 1, 1998, the Company adopted the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information" ("SFAS
131"). SFAS 131 superseded SFAS 14, "Financial Reporting for Segments of a
Business Enterprise." SFAS 131 establishes standards for the way that public
business enterprises report selected information about operating segments in
interim financial reports. SFAS 131 also establishes standards for related
disclosures about products and services, geographic areas and major customers.
The adoption of SFAS 131 had no impact on the Company's results of operations,
financial position or disclosure of segment information at June 30, 1998.
In March 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 132, "Employers' Disclosures about Pensions
and Other Postretirement Benefits" ("SFAS 132"). SFAS 132 does not change the
recognition or measurement of pension or postretirement benefit plans, but
revises and standardizes disclosure requirements for pensions and other
postretirement benefits. The adoption of SFAS 132 has no impact on the
Company's results of operations or financial condition.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Financial
Instruments and for Hedging Activities" ("SFAS 133") which provides a
comprehensive and consistent standard for the recognition and measurement of
derivatives and hedging activities. SFAS 133 is effective for years beginning
after June 15, 1999 and is not anticipated to have an impact on the Company's
results of operations or financial condition when adopted.
2. RESEARCH AND DEVELOPMENT ARRANGEMENTS
In June 1995, the Company entered into a research and development
collaboration with Astra AB ("Astra") to develop new drugs to treat
Alzheimer's disease, stroke, traumatic brain injury and multi-infarct
dementia. Astra paid an initial amount of $4,000,000 in 1995 as reimbursement
for research performed by the Company
F-10
<PAGE>
CENTAUR PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
prior to the collaboration. Also, under the terms of the agreement, Astra
provides funding of up to $6,000,000 per year for five years for research and
development work, subject to certain limitations and for Astra to bear the
costs of its development work. In addition, payments are made to the Company
based on achievement of certain drug development milestones. In return, Astra
was granted exclusive worldwide marketing rights to any products resulting
from this collaboration. The agreement also provides for the Company to
receive a royalty on sales under the collaboration. During the years ended
December 31, 1995, 1996 and 1997 and the six months ended June 30, 1997 and
1998, the Company recognized net revenue of $7,573,000, $8,301,000,
$7,113,000, $4,327,000 and $3,434,000, respectively, in connection with this
collaboration. Costs associated with this contract, including allocated
general and administrative costs, approximate the revenue recorded (exclusive
of signing and milestone fees). This agreement expires on the later of 15
years after the first commercial sale of a licensed product or the expiration
of applicable patents. Astra has the right to terminate all or certain
portions of this agreement upon 12 month's notice.
In October 1996, the Company entered into a four-year research and
development collaboration with H. Lundbeck A/S ("Lundbeck") to jointly
commercialize the Company's proprietary drug compound for Parkinson's disease.
This collaboration was terminated in March 1998 (see Note 9). Under the terms
of this agreement, Lundbeck jointly funded research, development, regulatory,
and other nonresearch activities with the Company. In addition, nonrefundable
payments were made to the Company based on achievement of certain drug
development milestones. The agreement provided for the Company to receive a
royalty on sales and a profit on manufacturing for products developed under
the collaboration. During the years ended December 31, 1996 and 1997, the
Company recognized net revenue of $3,740,000 and $2,090,000, respectively, in
connection with this collaboration. During the six months ended June 30, 1997
and 1998, the Company recognized net revenue of $1,720,000 and $163,000,
respectively, in connection with this collaboration. Costs associated with
this contract including allocated general and administrative costs approximate
the revenue recorded (exclusive of signing and milestone fees).
During the years ended December 31, 1995, 1996 and 1997, the Company was
awarded several National Institutes of Health grants to further its research
efforts related to its proprietary technology. In 1997, $364,000 was
recognized as revenue under completed grants. Costs associated with these
grants approximate the revenues recorded.
Contract revenue receivable is net of allowances for doubtful accounts of
$1,600,000 and $1,806,000 at December 31, 1997 and June 30, 1998, respectively
(none at December 31, 1995 and 1996).
F-11
<PAGE>
CENTAUR PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
3. INVESTMENTS
The following is a summary of available-for-sale securities at December 31,
1995, 1996 and 1997 (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST LOSSES GAINS VALUE
------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. corporate securities........ $ 5,861 $-- $ 37 $ 5,898
------- ---- ---- -------
Total as of December 31,
1995........................ $ 5,861 $-- $ 37 $ 5,898
======= ==== ==== =======
U.S. corporate securities........ $ 5,268 $ (3) $ 2 $ 5,267
------- ---- ---- -------
Total as of December 31,
1996........................ $ 5,268 $ (3) $ 2 $ 5,267
======= ==== ==== =======
U.S. corporate securities........ $11,163 $ (2) $ 3 $11,164
U.S. government securities....... $ 1,000 $-- $-- $ 1,000
------- ---- ---- -------
Total as of December 31,
1997........................ $12,163 $ (2) $ 3 $12,164
======= ==== ==== =======
U.S. corporate securities
(unaudited)..................... $10,725 $ (8) $ 1 $10,718
------- ---- ---- -------
Total as of June 30, 1998
(unaudited)................. $10,725 $ (8) $ 1 $10,718
======= ==== ==== =======
</TABLE>
All of the above securities are included in the balance sheet as short-term
investments at December 31, 1995, 1996 and 1997 and June 30, 1998.
There were no material gross realized gains or losses in 1995, 1996 and 1997
or for the six months ended June 30, 1998.
As of December 31, 1995, 1996 and 1997 and June 30, 1998, the average
remaining maturity of the portfolio was approximately five months, and no
individual contractual maturity exceeds one year.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1995 1996 1997 1998
------ ------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Laboratory and office equipment.... $1,314 $ 3,199 $ 4,430 $ 4,474
Leasehold improvements............. 287 1,096 1,065 1,267
Construction in-process............ -- -- 6,342 8,555
------ ------- ------- -------
1,601 4,295 11,837 14,296
Less accumulated depreciation and
amortization...................... (443) (1,155) (2,202) (2,800)
------ ------- ------- -------
Property and equipment, net........ $1,158 $ 3,140 $ 9,635 $11,496
====== ======= ======= =======
</TABLE>
As of December 31, 1995, 1996 and 1997 and June 30, 1998, laboratory and
office equipment held under capital leases totaled $593,000, with related
accumulated amortization of $216,000, $364,000, $512,000 and $586,000,
respectively.
F-12
<PAGE>
CENTAUR PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
5. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1995 1996 1997 1998
------ ------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Clinical trials.......................... $ 465 $ 480 $ 250 $ 320
Patent accruals.......................... 415 375 289 236
Professional fees........................ 120 340 340 390
Other.................................... 103 169 183 220
------ ------ ------ ------
$1,103 $1,364 $1,062 $1,166
====== ====== ====== ======
</TABLE>
6. COMMITMENTS
In September 1994, the Company entered into a $750,000 capital lease
agreement. As of December 31, 1995, 1996 and 1997 and June 30, 1998, lease
obligations under this agreement totaled $455,000, $328,000, $183,000 and
$108,000, respectively. The lease obligations bear interest at 15.2%, are
secured by the related equipment and are payable through October 1998. At the
conclusion of the capital lease, the Company has the option to purchase the
equipment at 15% of its original fair market value.
The Company leases certain research and manufacturing facilities under
operating leases that expire in 2001 and 2004. Future minimum lease payments
under capital leases and such noncancelable operating leases are as follows
(in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
<S> <C> <C>
Year ended December 31,
1998................................................. $ 813 $198
1999................................................. 856 --
2000................................................. 892 --
2001................................................. 542 --
2002................................................. 438 --
Thereafter........................................... 543 --
------ ----
Total minimum payment required..................... $4,084 198
======
Less amount representing interest...................... (15)
----
Present value of future lease payments--due in one
year.................................................. $183
====
</TABLE>
Rent expense was approximately $254,000, $385,000 and $640,000 in 1995, 1996
and 1997, respectively.
In connection with construction in-process on the Company's pilot synthesis
plant and its research and development activities, primarily clinical studies
and sponsored research and development agreements, the Company has total
noncancelable commitments of approximately $4,300,000 at December 31, 1997
payable over the next 12 months.
7. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Redeemable Convertible Preferred Stock
Through December 31, 1996, the Company had sold a total of 8,722,735 shares
of Series A, B and C redeemable convertible preferred stock ("preferred
stock") for total net proceeds of $11,698,000. In 1997, the
F-13
<PAGE>
CENTAUR PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
Company sold a total of 2,200,000 shares of Series D preferred stock for cash
proceeds of $16,407,000, net of issuance costs of $93,000.
The authorized and outstanding shares of Series A, B, C and D preferred
stock were as follows at December 31, 1997 and June 30, 1998:
<TABLE>
<CAPTION>
AGGREGATE
AUTHORIZED SHARES REDEMPTION
SHARES OUTSTANDING VALUE
---------- ----------- -----------
<S> <C> <C> <C>
Series A............................... 2,000,000 2,000,000 $ 1,000,000
Series B............................... 2,545,454 2,545,454 3,500,000
Series C............................... 4,177,281 4,177,281 7,310,242
Series D............................... 2,200,000 2,200,000 16,500,000
---------- ---------- -----------
10,922,735 10,922,735 $28,310,242
========== ========== ===========
</TABLE>
The shares of Series A, B, C and D preferred stock are convertible at any
time into common stock on a one-for-one basis, subject to adjustment for
antidilution. Conversion is automatic upon the closing of an underwritten
public offering with aggregate offering proceeds exceeding $10,000,000 and an
offering price of at least $4.125 per share ($7.50 per share for the Series
D). The Company has reserved 10,922,735 shares of common stock to be issued to
stockholders upon conversion of the outstanding preferred stock.
Holders of Series A, B, C and D preferred stock are entitled, out of any
funds legally available, to noncumulative dividends if and when declared by
the board of directors. These dividends are to be paid in advance of any
distributions to common stockholders. No dividends have been declared through
December 31, 1997 or June 30, 1998.
At any time between October 1, 1999 and September 30, 2000, should the
Company receive notification from holders of at least 66 2/3% of its
outstanding Series A, B, C and D shares, the Company will be required to
redeem all of the then outstanding preferred stock at the original issue
prices of $0.50, $1.375, $1.75 and $7.50 per share, respectively, plus any
accrued and unpaid dividends.
In the event of a liquidation or winding up of the Company, holders of
Series A, B, C and D preferred stock shall have a liquidation preference of
$0.50, $1.375, $1.75 and $7.50 per share, respectively, together with any
declared but unpaid dividends, over holders of common shares.
The Series A, B, C and D preferred stockholders are entitled to the number
of votes they would have upon conversion of their preferred stock into common
stock.
1993 Equity Incentive Stock Option Plan ("1993 Stock Plan")
Under the 1993 Stock Plan, options, restricted stock, or stock bonuses may
be granted by a committee of the board of directors to employees, officers,
directors, consultants, and independent contractors. Options granted may be
either incentive stock options or nonstatutory stock options. Incentive stock
options may be granted to employees at exercise prices of no less than the
fair market value and nonstatutory options may be granted to employees or
consultants at exercise prices of no less than 85% of the fair market value of
the common stock on the grant date as determined by the board of directors.
Options become exercisable as determined by the board of directors (or a
committee of the board of directors), generally monthly over four years.
Restricted stock awards shall be subject to restrictions as determined by a
committee of the board of directors. Stock bonuses are awarded by a committee
of the board of directors for services rendered to the Company. A total of
1,751,437 common shares were reserved for issuance under the 1993 Stock Plan
at December 31, 1997, of which 220,957 remained available for future option
grants.
F-14
<PAGE>
CENTAUR PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
The Company has issued the following options under the 1993 Stock Plan, as
described below. These options have a ten-year term and generally become
exercisable over a four-year period. A summary of the option activity is as
follows:
<TABLE>
<CAPTION>
SHARES WEIGHTED-
AVAILABLE OPTIONS PRICE AVERAGE
FOR GRANT OUTSTANDING PER SHARE EXERCISE PRICE
--------- ----------- ------------ --------------
<S> <C> <C> <C> <C>
Balance at December 31,
1994..................... 993,397 1,004,854 $0.10-$ 0.15 $0.14
Options granted......... (362,750) 362,750 $0.20-$ 0.30 $0.24
Options exercised....... -- (1,354) $0.15 $0.15
Options canceled........ 70,584 (70,584) $0.15-$ 0.20 $0.17
-------- ---------
Balance at December 31,
1995..................... 701,231 1,295,666 $0.15-$ 0.20 $0.17
Additional shares
authorized............. 250,000 -- -- --
Options granted......... (334,610) 334,610 $0.30-$ 2.00 $0.47
Options exercised....... -- (243,470) $0.10-$ 1.00 $0.15
Options canceled........ 46,710 (46,710) $0.15-$ 2.00 $0.35
-------- ---------
Balance at December 31,
1996..................... 663,331 1,340,096 $0.10-$ 2.00 $0.24
Options granted......... (530,000) 530,000 $2.50-$ 3.00 $2.55
Options exercised....... -- (252,033) $0.15-$ 2.50 $0.20
Options canceled........ 87,626 (87,626) $0.15-$ 2.50 $0.73
-------- ---------
Balance at December 31,
1997..................... 220,957 1,530,437 $0.15-$ 3.00 $1.00
Additional shares
authorized (unaudited). 150,000 -- -- --
Options granted
(unaudited)............ (310,119) 310,119 $4.00-$10.00 $4.44
Options exercised
(unaudited)............ -- (19,047) $0.15-$ 4.00 $0.64
Options canceled
(unaudited)............ 31,727 (31,727) $0.30-$ 4.00 $2.40
-------- ---------
Balance at June 30, 1998
(unaudited).............. 92,565 1,789,782 $0.10-$10.00 $1.59
======== =========
</TABLE>
The weighted-average fair value per share of the options granted during the
year were $0.06, $0.40 and $1.46 in 1995, 1996 and 1997, respectively, and
$4.79 for options granted during the six months ended June 30, 1998.
In June 1998, the board of directors approved the Company's 1998 Equity
Incentive Plan, the 1998 Directors Stock Option Plan and the 1998 Employee
Stock Purchase Plan (the "1998 Plans") and initially reserved 1,250,000 shares
for issuance thereunder, subject to stockholder approval. The 1998 Plans
provide for the grant of incentive stock options to employees and employee
directors and nonstatutory stock options and stock purchase rights to
employees, directors and consultants.
F-15
<PAGE>
CENTAUR PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
Exercise prices of options outstanding and options exercisable were as
follows:
<TABLE>
<CAPTION>
OPTIONS
OPTIONS OUTSTANDING EXERCISABLE
------------------------------- -----------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
REMAINING EXERCISE NUMBER EXERCISE
NUMBER OF CONTRACTUAL PRICE OF PRICE
OPTIONS LIFE PER SHARE OPTIONS PER SHARE
--------- ----------- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
December 31, 1997
$0.10-$0.50.............. 992,338 6.86 $0.21 714,564 $0.19
$1.00-$2.50.............. 490,099 9.32 $2.45 74,717 $2.38
$3.00.................... 48,000 9.93 $3.00 2,951 $3.00
--------- -------
1,530,437 7.74 $1.02 792,232 $0.40
========= =======
June 30, 1998 (unaudited)
$0.10-$0.50.............. 971,713 6.36 $0.21 800,053 $0.19
$1.00-$2.50.............. 465,723 8.81 $2.45 131,561 $2.40
$3.00-$4.00.............. 300,846 9.59 $3.84 29,897 $3.70
$6.50-$10.00............. 51,500 9.87 $6.64 1,021 $6.50
--------- -------
1,789,782 7.64 $1.59 962,532 $0.61
========= =======
</TABLE>
At December 31, 1995 and 1996, 516,878 and 630,072 options were exercisable
with weighted-average exercise prices of $0.14 and $0.18, respectively.
Pro forma information regarding net income (loss) is required by SFAS 123,
which also requires that the pro forma information be determined as if the
Company has accounted for its employee stock options granted subsequent to
December 31, 1995 under the fair value method of that Statement. The fair
value of these options was estimated at the date of grant using the minimum
value method option pricing model with the following weighted-average
assumptions: risk-free interest rate of 6.5%; a dividend yield of 0%; and a
weighted-average expected life of the option of five years.
Had the Company valued its stock options according to the provisions of SFAS
123, pro forma net income (loss) and pro forma net income (loss) per share
would have been as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
---------------------
1995 1996 1997
------ ------ -------
<S> <C> <C> <C>
Net income (loss):
As reported..................................... $1,491 $2,945 $(7,232)
Pro forma for SFAS 123.......................... 1,488 2,912 (7,379)
Basic net income (loss) per share:
As reported..................................... 0.62 1.15 (2.64)
Pro forma for SFAS 123.......................... 0.62 1.14 (2.69)
Diluted net income (loss) per share:
As reported..................................... 0.13 0.24 (2.64)
Pro forma for SFAS 123.......................... 0.13 0.23 (2.69)
</TABLE>
Deferred Compensation
During the year ended December 31, 1997 and the six months ended June 30,
1998, the Company recorded deferred compensation of $2,293,000 and $2,211,000,
respectively, for the excess of the deemed fair value of the Company's common
stock over the exercise price for certain options and warrants granted in 1997
and the
F-16
<PAGE>
CENTAUR PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
six months ended June 30, 1998. This deferred compensation will be amortized
to compensation expense over the related vesting period, generally four years.
Subsequent to June 30, 1998, the Company granted additional options to acquire
32,500 shares of common stock at exercise prices of $10.00 per share. The
Company will record deferred compensation of approximately $250,000 related to
these additional grants.
Warrants
Under the terms of the capital lease agreement, the Company issued a five-
year warrant to purchase 33,603 shares of the Company's common stock at an
exercise price of $1.925 per share. The warrant is exercisable in full upon
surrender of the warrant to the Company.
The Company has issued the following warrants to consultants to purchase
shares of the Company's common stock:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE VESTING
ISSUE DATE SHARES PRICE TERM
---------- --------- -------- -------
<S> <C> <C> <C>
August 1996.................. 10,000 $3.00 3 years
September 1997............... 10,000 $3.00 3 years
February 1998................ 5,000 $4.00 3 years
February 1998................ 10,000 $4.00 5,000 upon completion of an
initial public offering,
subject to certain terms;
remaining 5,000 over 3 years
</TABLE>
8. INCOME TAXES
As of December 31, 1997, the Company had federal net operating loss
carryforwards of approximately $3,500,000. The Company also had federal
research and development tax credit carryforwards of approximately $100,000.
The federal net operating loss and credit carryforwards will expire in the
year 2012 if not utilized.
Utilization of the net operating losses and credit carryforwards may be
subject to substantial annual limitation due to ownership change provisions of
the Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and credits
before utilization.
Significant components of the Company's deferred tax assets are as follows
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996 1997
----- ----- -------
<S> <C> <C> <C>
Net operating loss carryforwards................... $ 300 $ -- $ 1,400
Research credit carryforwards...................... 100 -- 100
Capitalized research and development............... 200 200 200
Deferred revenue................................... -- 200 --
Other accruals and reserves........................ 100 300 400
----- ----- -------
Total deferred tax assets...................... 700 700 2,100
Valuation allowance for deferred tax assets........ (700) (700) (2,100)
----- ----- -------
Net deferred tax assets............................ $ -- $ -- $ --
===== ===== =======
</TABLE>
The valuation allowance increased by $300,000 during the year ended December
31, 1995.
F-17
<PAGE>
CENTAUR PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
9. EVENTS SUBSEQUENT TO DECEMBER 31, 1997
In February 1998, the board of directors resolved to increase the number of
shares of common stock reserved for issuance under the 1993 Stock Plan by
150,000. A total of 1,900,540 common shares are reserved for issuance under
the 1993 Stock Plan at June 30, 1998, of which 123,663 remained available for
future option grants.
In March 1998, the Company's research and development collaboration with
Lundbeck was terminated by Lundbeck based primarily on a claim that Centaur
had breached the agreement by commencing clinical trials for AIDS dementia,
using the same compound as is being used in the Company's Parkinson's disease
clinical trials, without obtaining consent from Lundbeck. This claim was
disputed by the Company. In July 1998, the Company and Lundbeck entered into
an agreement releasing each party from any further obligations or claims under
the research and development collaboration and providing the Company with an
option to use certain production processes and other intellectual property of
Lundbeck in exchange for certain limited royalty payments in the event Centaur
exercises such option.
In March 1998, the Company entered into a debt financing arrangement for up
to $10,000,000. At June 30, 1998, the total debt due under the debt financing
was $8,659,000. The debt bears interest at 14.8% per annum and is secured by
certain equipment and leasehold rights and improvements. The debt is repayable
in 48 monthly installments through 2002. The annual maturities at June 30,
1998 were $1,684,000 in 1999, $2,117,000 in 2000, $2,455,000 in 2001 and
$2,403,000 in 2002.
In June 1998, the board of directors approved the Company's 1998 Equity
Incentive Plan, the 1998 Directors Stock Option Plan and the 1998 Employee
Stock Purchase Plan (the "1998 Plans") and initially reserved 1,250,000 shares
for issuance thereunder, subject to stockholder approval. The 1998 Plans
provide for the grant of incentive stock options to employees and employee
directors and nonstatutory stock options and stock purchase rights to
employees, directors and consultants.
In June 1998, the board of directors approved an increase in the number of
authorized shares of common stock to 33,000,000 and an increase in the
authorized number of undesignated shares of preferred stock by 3,000,000
shares, for which the board of directors is authorized to fix the designation,
powers, preferences and rights.
In September 1998, the board of directors approved the sale of shares of the
Company's common stock at $11 per share, in an offering expected to consist of
1,500,000 shares. Also effective in September 1998, the stockholders approved
an amendment to the Company's Certificate of Incorporation to provide for the
conversion of the Company's preferred stock into common stock immediately
prior to the closing of this offering.
If the offering is consummated under the terms presently anticipated, all of
the preferred stock outstanding will be converted into 10,922,735 shares of
common stock upon the closing of the offering, and such shares will no longer
be available for issuances at that time. Unaudited pro forma stockholders'
equity as of December 31, 1997 and June 30, 1998 as adjusted for the assumed
conversion of the preferred stock is set forth on the accompanying balance
sheet.
F-18
<PAGE>
[Description of diagram appearing on inside back cover of Preliminary
Prospectus: Below text that reads "Diseases in Which OSA Play a Role" appears
a diagram of the human body with the following organs highlighted and
described in text (from top to bottom):
1) a depiction of the human brain shown from the side with a line leading from
the depiction to the following text appearing to the right:
" Parkinson's Disease
Stroke
AIDS Dementia
Alzheimer's Disease
Multiple Sclerosis
Traumatic Brain Injury "
2) a depiction of the human eye from the side with a line leading from the
depiction to the following text appearing to the left:
" Ophthalmic Disorders "
3) a depiction of the human heart and lungs with a line leading from the
depiction to the following text appearing to the right:
" Myocardial Infarction "
4) a depiction of the kidneys and large and small intestines with a line
leading from the depiction to the following text appearing to the left:
" Inflammatory Bowel Disease "
5) a depiction of the wrist bone joint with a line leading from the depiction
to the following text appearing to the right:
" Osteoarthritis "
6) a depiction of the knee bone joint with a line leading from the depiction
to the following text appearing to the right:
" Rheumatoid Arthritis "]
<PAGE>
===============================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PRO-
SPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED BY THE COMPANY OR ANY MANAGER. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, SHARES OF COMMON STOCK IN
ANY JURISDICTION TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH OFFER
OR SOLICITATION IN SUCH JURISDICTION OR IN WHICH THE PERSON MAKING SUCH OFFER
OR SOLICITATION IS NOT QUALIFIED TO DO SO. NEITHER THE DELIVERY OF THIS PRO-
SPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 7
The Company............................................................... 19
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.................................................................. 28
Management................................................................ 45
Certain Transactions...................................................... 53
Principal Stockholders.................................................... 55
Description of Capital Stock.............................................. 58
U.S. Taxation............................................................. 62
Swiss Taxation ........................................................... 64
Shares Eligible for Future Sale........................................... 65
Underwriting.............................................................. 67
Legal Matters............................................................. 69
Experts................................................................... 69
Additional Information.................................................... 69
Index to Financial Statements............................................. F-1
</TABLE>
UNTIL , 1999 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPAT-
ING 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.
===============================================================================
===============================================================================
[CENTAUR LOGO APPEARS HERE]
1,500,000 SHARES
COMMON STOCK
PROSPECTUS
, 1998
BANK J. VONTOBEL & CO AG
GLOBAL COORDINATOR
VECTOR SECURITIES INTERNATIONAL, INC.
SPECIAL U.S. ADVISOR
VONTOBEL SECURITIES LTD.
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses to be paid by the
Company in connection with the sale of the shares of Common Stock being
registered hereby. All amounts are estimates except for the Securities and
Exchange Commission registration fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee........... $ 27,878
Reimbursement of Managers' expenses(*)........................ 428,640
Accounting fees and expenses.................................. 425,000
Legal fees and expenses....................................... 700,000
Investor relations fees and expenses.......................... 375,000
Road show expenses............................................ 100,000
Transfer agent and registrar fees and expenses................ 10,000
Miscellaneous................................................. 8,482
----------
Total..................................................... $2,075,000
==========
</TABLE>
- --------
* Pursuant to the Underwriting Agreement, the Managers have agreed to pay
certain costs and expenses of this offering, including printing and
engraving expenses and blue sky fees and expenses. The Company has agreed
to reimburse the Managers for these and certain other expenses of $428,640
(CHF 600,000).
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by the Delaware General Corporation Law, the Registrant's
Certificate of Incorporation includes a provision that eliminates the personal
liability of its directors for monetary damages for breach of fiduciary duty
as a director except for liability (i) for any breach of the director's duty
of loyalty to the corporation or its stockholders, (ii) for acts or omissions
not in good faith or that involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law or (iv) for any transaction from which the director derived an improper
personal benefit.
As permitted by Section 145 of the Delaware General Corporation Law, the
Bylaws of the Registrant provide that (i) the Registrant is required to
indemnify its directors and executive officers to the fullest extent permitted
by the Delaware General Corporation Law, (ii) the Registrant may indemnify its
other officers, employees and agents as set forth in the Delaware General
Corporation Law, (iii) to the fullest extent permitted by the Delaware General
Corporation Law, the Registrant is required to advance expenses, as incurred,
to its directors and executive officers in connection with a legal proceeding
(subject to certain exceptions), (iv) the rights conferred in the Bylaws are
not exclusive, (v) the Registrant is authorized to enter into indemnification
agreements with its directors, officers, employees and agents and (vi) the
Registrant may not retroactively amend its Bylaws provisions relating to
indemnity.
The Registrant's policy is to enter into indemnity agreements with each of
its directors and executive officers. The indemnity agreements provide that
directors and executive officers will be indemnified and held harmless to the
fullest possible extent permitted by law including against all expenses
(including attorneys' fees), judgments, fines and settlement amounts paid or
reasonably incurred by them in any action, suit or proceeding, including any
derivative action by or in the right of the Registrant, on account of their
services as directors, officers, employees or agents of the Registrant or as
directors, officers, employees or agents of any other company or enterprise
when they are serving in such capacities at the request of the Registrant. The
Registrant will not be obligated pursuant to the agreements to indemnify or
advance expenses to an indemnified party with respect to proceedings or claims
(i) initiated by the indemnified party and not by way of defense, except with
respect to a proceeding authorized by the Board of Directors and successful
proceedings brought to enforce a right to indemnification under the Indemnity
Agreement, (ii) for any amounts paid in settlement of a proceeding unless the
Registrant consents to such settlement, (iii) on account of any suit in which
judgment is rendered
II-1
<PAGE>
against the indemnified party for an accounting of profits made from the
purchase or sale by the indemnified party of securities of the Registrant
pursuant to the provisions of Section 16(b) of the Securities Exchange Act of
1934 and related laws, (iv) on account of conduct by a director which is
finally adjudged to have been in bad faith or conduct that the director did
not reasonably believe to be in, or not opposed to, the best interests of the
Registrant, (v) on account of any criminal action or proceeding arising out of
conduct that the director had reasonable cause to believe was unlawful or (vi)
if a final decision by a court having jurisdiction in the matter shall
determine that such indemnification is not lawful.
The indemnity agreement also provides for contribution in certain situations
in which the Registrant and a director or executive officer are jointly liable
but indemnification is unavailable, such contribution to be based on the
relative benefits received and the relative fault of the Registrant and the
director or executive officer. Contribution is not allowed in connection with
a Section 16(b) judgment, an adjudication of bad faith or conduct that a
director or executive officer did not reasonably believe to be in, or not
opposed to, the best interests of the Registrant or a proceeding arising out
of conduct a director or executive officer had reasonable cause to believe was
unlawful.
The indemnity agreement requires a director or executive officer to
reimburse the Registrant for all expenses advanced only to the extent it is
ultimately determined that the director or executive officer is not entitled,
under Delaware law, the Bylaws, the indemnity agreement or otherwise, to be
indemnified for such expenses. The indemnity agreement provides that it is not
exclusive of any rights a director or executive officer may have under the
Certificate of Incorporation, Bylaws, other agreements, any majority-in-
interest vote of the stockholders or vote of disinterested directors, the
Delaware law or otherwise.
The indemnification provision in the Bylaws, and the indemnity agreements
entered into between the Registrant and its directors and executive officers,
may be sufficiently broad to permit indemnification of the Registrant's
executive officers and directors for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act").
As authorized by the Registrant's Bylaws, the Registrant, with approval by
the Board, expects to purchase director and officer liability insurance.
See also the undertakings set out in response to Item 17.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
DOCUMENT EXHIBIT NUMBER
-------- --------------
<S> <C>
Underwriting Agreement.................................... 1.01
Registrant's Restated Certificate of Incorporation........ 3.01
Form of Registrant's Amended and Restated Certificate of
Incorporation to be filed immediately following the
offering................................................. 3.02
Registrant's Bylaws....................................... 3.03
Third Amended and Restated Investors' Rights Agreement,
dated as of February 14, 1997............................ 4.02
Form of Indemnification Agreement......................... 10.05
</TABLE>
II-2
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following table sets forth information regarding all securities sold by
the Registrant since October 1, 1995.
<TABLE>
<CAPTION>
AGGREGATE PURCHASE
DATE OF TITLE OF NUMBER OF PRICE AND FORM OF
CLASS OF PURCHASERS SALE(S) SECURITIES(1) SECURITIES CONSIDERATION
------------------- ---------- ------------------- ---------- -------------------
<S> <C> <C> <C> <C>
Neil Solomon and Andrew
Newcorn................. 2/15/96 Common Stock 2,730 Issued in
connection with
consulting services
rendered
Prospektiva Investments. 8/12/96 Warrant to purchase 10,000 Issued in
Common Stock at connection with
$3.00 per share consulting services
rendered
52 unaffiliated
purchasers and the
following purchasers
that were then officers,
directors and their
affiliates, and greater
than 5% stockholders:
Paul F. Glenn, Trustee,
Paul F. Glenn Revocable
Trust; Glenn Foundation
for Medical Research;
Brian D. Frenzel; Selvi
Vescovi; Charter
Ventures II, L.P.; Menlo
Ventures IV, L.P.;
Oklahoma Medical
Research Foundation; and
Dillon, Read & Co. Inc.,
as agent................ 2/14/97 to Series D Preferred 2,200,000 $16,500,000 cash
10/3/97 Stock
Prospektiva Investments. 9/19/97 Warrant to purchase 10,000 Issued in
Common Stock at connection with
$3.00 per share consulting services
rendered
Hans-Jurg Buss.......... 2/14/98 Warrant to purchase 10,000 Issued in
Common Stock at connection with
$4.00 per share consulting services
rendered
Steinar Engelsen........ 2/14/98 Warrant to purchase 5,000 Issued in
Common Stock at connection with
$4.00 per share consulting services
rendered
149 officers, directors,
employees
and/or consultants...... 10/1/95 to Options to purchase 1,261,179 Options granted for
9/30/98 Common Stock under no cash
the 1993 Equity consideration
Incentive Plan.
Exercise prices
range from $0.30 to
$10.00 per
share.(2)
34 officers, directors,
employees
and/or consultants...... 10/1/95 to Common Stock(3) 564,311 $113,202 cash (upon
9/30/98 exercise of stock
options with
exercise prices
ranging from $0.10
to $4.00 per share)
Private Equity Bridge
Invest Ltd.............. 7/13/98 Common Stock 26,550 $51,109 cash (upon
exercise of a
warrant with
exercise price of
$1.925 per share)
Aberlyn Holding Company,
Inc..................... 7/23/98 Common Stock 5,695 $10,963 in Common
Stock of the
Company (upon net
exercise of a
warrant with
exercise price of
$1.925 per share)
</TABLE>
- --------
(1) Unless otherwise noted, all sales were made in reliance on Section 4(2) of
the Securities Act and/or Regulation D promulgated under the Securities
Act. The securities were sold to a limited number of people with no
general solicitation or advertising. The purchasers were sophisticated
investors with access to all relevant information necessary to evaluate
the investment who represented to the Registrant that the shares were
being acquired for investment.
(2) With respect to the grant of stock options, exemptions from registration
under the Securities Act were unnecessary in that none of such
transactions involved a "sale" of securities as such term is used in
Section 2(3) of the Securities Act.
(3) All sales of Common Stock pursuant to the exercise of stock options
granted under the Registrant's stock option plan were made pursuant to the
exemption from the registration requirements of the Securities Act
afforded by Rule 701 promulgated under the Securities Act as transactions
pursuant to a compensatory benefit plan or a written contract relating to
compensation.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
1.01 --Underwriting Agreement.
1.02 --Form of Letter Agreement between Registrant and Bank J. Vontobel.
3.01 --Registrant's Restated Certificate of Incorporation.*
3.02 --Form of Registrant's Amended and Restated Certificate of Incorpo-
ration to be filed immediately following the offering.*
3.03 --Registrant's Bylaws.*
4.01 --Form of Specimen Certificate for Registrant's Common Stock.*
4.02 --Third Amended and Restated Investors' Rights Agreement, dated as
of February 14, 1997.*
4.03 --Third Amended and Restated Investors' Rights Agreement, as amended
as of September 23, 1998.
5.01 --Opinion of Fenwick & West LLP regarding legality of the securities
being registered.
10.01 --Registrant's 1993 Equity Incentive Plan, as amended.*
10.02 --Registrant's 1998 Equity Incentive Plan.*
10.03 --Registrant's 1998 Directors Stock Option Plan.*
10.04 --Registrant's 1998 Employee Stock Purchase Plan.*
10.05 --Form of Indemnification Agreement entered into by Registrant with
each of its directors and executive officers.*
10.06 --Master Loan and Security Agreement between Registrant and Finova
Technology Finance, Inc., dated as of November 3, 1997; Loan and
Security Agreement No. 1 dated April 22, 1998 between Registrant
and Finova Technology Finance, Inc.; Commitment Letter between
the Registrant and Finova Technology Finance, Inc., dated as of
October 7, 1997 (as revised on December 23, 1997), as amended
April 20, 1998; Leasehold Deeds of Trust dated November 3, 1997
executed by the Registrant; Promissory Note dated April 22, 1998
executed by Registrant.*
10.07 --Lease for 484 Oakmead Parkway, Sunnyvale, CA dated February 25,
1993, as amended August 18, 1995.*
10.08 --Sublease for additional space at 484 Oakmead Parkway, Sunnyvale,
CA dated March 22, 1995.*
10.09 --Lease for 1220 Memorex Drive, Suite 100, Santa Clara, CA dated
February 12, 1997.*
10.10 --Lease for 1220 Memorex Drive, Suites 200 and 300, Santa Clara, CA
dated June 12, 1997.*
10.11 --License with UKRF and OMRF dated July 15, 1992.+*
10.12 --First Amendment to License with UKRF and OMRF dated June 29,
1995.+*
10.13 --Development, License and Marketing Agreement with Astra AB dated
June 26, 1995.+*
10.14 --Supply Agreement with Astra AB dated June 26, 1995.+*
10.15 --Amendments to Development, License and Marketing Agreement with
Astra AB dated July 8, 1997 and October 7, 1997.*
10.16 --Development, Patent and Trademark/Know-How Licensing and Supply
Agreement--CPI-1189 with H. Lundbeck A/S dated October 31, 1996,
as amended as of October 31, 1996.+*
10.17 --Employment Agreement with Brian D. Frenzel dated December 1, 1993,
and associated Stock Option Agreements.*
10.18 --License Agreement dated January 15, 1998 between Registrant and
Cutanix Corporation.+*
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
10.19 --Services and Supply Agreement dated January 15, 1998 between
Registrant and Cutanix Corporation.+*
10.20 --Stockholders' Agreement dated January 15, 1998 by and among
Cutanix Corporation and certain stockholders of Cutanix
Corporation.*
10.21 --License Agreement dated January 1, 1998 by and among OMRF and
Registrant.+*
23.01 --Consent of Fenwick & West LLP (included in Exhibit 5.01).
23.02 --Consent of Ernst & Young LLP, independent auditors.*
24.01 --Power of Attorney.*
27.01 --Amended Financial Data Schedule.*
27.02 --Financial Data Schedule.*
</TABLE>
- --------
* Previously filed.
+ Confidential treatment is being sought with respect to certain portions of
this agreement. Such portions have been omitted from this filing and have
been filed separately with the Securities and Exchange Commission.
(b) The following financial statement schedule is filed herewith:
Schedule II--Valuation and Qualifying Accounts
Other financial statement schedules are omitted because the information
called for is not required or is shown either in the financial statements or
the notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Managers at
the closing specified in the Purchase Agreement certificates in such
denominations and registered in such names as required by the Managers to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
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(h) 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, 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.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT TO ITS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF
BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF SUNNYVALE, STATE
OF CALIFORNIA, ON THE 9TH DAY OF OCTOBER, 1998.
Centaur Pharmaceuticals, Inc.
/s/ Joseph L. Turner
By: _________________________________
Joseph L. TurnerChief Financial
Officer, Treasurer and Secretary
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS AMENDMENT TO THE
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
Principal Executive Officer:
<S> <C> <C>
* President, Chief Executive October 9, 1998
____________________________________ Officer and a Director
Brian D. Frenzel
Principal Financial Officer and
Principal Accounting Officer:
/s/ Joseph L. Turner Chief Financial Officer, October 9, 1998
____________________________________ Treasurer and Secretary
Joseph L. Turner
Additional Directors:
* Director October 9, 1998
____________________________________
John M. Carney
* Director October 9, 1998
____________________________________
Mark R. Collins
* Director October 9, 1998
____________________________________
Graham K. Crooke
* Director October 9, 1998
____________________________________
Charles R. Engles
* Director October 9, 1998
____________________________________
Steinar J. Engelsen
* Director October 9, 1998
____________________________________
Selvi Vescovi
*By: /s/ Joseph L. Turner
____________________________________
Joseph L. Turner
Attorney-in-fact
</TABLE>
II-6
<PAGE>
CENTAUR PHARMACEUTICALS, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
--------------------
BALANCE AT CHARGED CHARGED BALANCE AT
BEGINNING TO COSTS AGAINST END OF
OF YEAR AND EXPENSES REVENUE DEDUCTIONS YEAR
---------- ------------ ------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1997 deducted from
asset account:
Allowance for doubtful
accounts.............. $ 0 $ -- $1,600 $ 0 $1,600
======= ======= ====== ====== ======
Year ended December 31,
1996 deducted from
asset account:
Allowance for doubtful
accounts.............. $ 0 $ -- $ -- $ -- $ 0
======= ======= ====== ====== ======
Year ended December 31,
1995 deducted from
asset account:
Allowance for doubtful
accounts.............. $ 0 $ -- $ -- $ -- $ 0
======= ======= ====== ====== ======
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
1.01 --Underwriting Agreement.
1.02 --Form of Letter Agreement between Registrant and Bank J. Vontobel.
3.01 --Registrant's Restated Certificate of Incorporation.*
3.02 --Form of Registrant's Amended and Restated Certificate of Incorpo-
ration to be filed immediately following the offering.*
3.03 --Registrant's Bylaws.*
4.01 --Form of Specimen Certificate for Registrant's Common Stock.*
4.02 --Third Amended and Restated Investors' Rights Agreement, dated as
of February 14, 1997.*
4.03 --Third Amended and Restated Investors' Rights Agreement, as amended
as of September 23, 1998.
5.01 --Opinion of Fenwick & West LLP regarding legality of the securities
being registered.
10.01 --Registrant's 1993 Equity Incentive Plan, as amended.*
10.02 --Registrant's 1998 Equity Incentive Plan.*
10.03 --Registrant's 1998 Directors Stock Option Plan.*
10.04 --Registrant's 1998 Employee Stock Purchase Plan.*
10.05 --Form of Indemnification Agreement entered into by Registrant with
each of its directors and executive officers.*
10.06 --Master Loan and Security Agreement between Registrant and Finova
Technology Finance, Inc., dated as of November 3, 1997; Loan and
Security Agreement No. 1 dated April 22, 1998 between Registrant
and Finova Technology Finance, Inc.; Commitment Letter between
the Registrant and Finova Technology Finance, Inc., dated as of
October 7, 1997 (as revised on December 23, 1997), as amended
April 20, 1998; Leasehold Deeds of Trust dated November 3, 1997
executed by the Registrant; Promissory Note dated April 22, 1998
executed by Registrant.*
10.07 --Lease for 484 Oakmead Parkway, Sunnyvale, CA dated February 25,
1993, as amended August 18, 1995.*
10.08 --Sublease for additional space at 484 Oakmead Parkway, Sunnyvale,
CA dated March 22, 1995.*
10.09 --Lease for 1220 Memorex Drive, Suite 100, Santa Clara, CA dated
February 12, 1997.*
10.10 --Lease for 1220 Memorex Drive, Suites 200 and 300, Santa Clara, CA
dated June 12, 1997.*
10.11 --License with UKRF and OMRF dated July 15, 1992.+*
10.12 --First Amendment to License with UKRF and OMRF dated June 29,
1995.+*
10.13 --Development, License and Marketing Agreement with Astra AB dated
June 26, 1995.+*
10.14 --Supply Agreement with Astra AB dated June 26, 1995.+*
10.15 --Amendments to Development, License and Marketing Agreement with
Astra AB dated July 8, 1997 and October 7, 1997.*
10.16 --Development, Patent and Trademark/Know-How Licensing and Supply
Agreement--CPI-1189 with H. Lundbeck A/S dated October 31, 1996,
as amended as of October 31, 1996.+*
10.17 --Employment Agreement with Brian D. Frenzel dated December 1, 1993,
and associated Stock Option Agreements.*
10.18 --License Agreement dated January 15, 1998 between Registrant and
Cutanix Corporation.+*
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
10.19 --Services and Supply Agreement dated January 15, 1998 between
Registrant and Cutanix Corporation.+*
10.20 --Stockholders' Agreement dated January 15, 1998 by and among
Cutanix Corporation and certain stockholders of Cutanix
Corporation.*
10.21 --License Agreement dated January 1, 1998 by and among OMRF and
Registrant.+*
23.01 --Consent of Fenwick & West LLP (included in Exhibit 5.01).
23.02 --Consent of Ernst & Young LLP, independent auditors.*
24.01 --Power of Attorney.*
27.01 --Amended Financial Data Schedule.*
27.02 --Financial Data Schedule.*
</TABLE>
- --------
* Previously filed.
+ Confidential treatment is being sought with respect to certain portions of
this agreement. Such portions have been omitted from this filing and have
been filed separately with the Securities and Exchange Commission.
<PAGE>
Exhibit 1.01
CENTAUR PHARMACEUTICALS, INC.
Common Stock
(par value $0.001 per share)
------------------------
Underwriting Agreement
------------------------
October 13, 1998
Bank J. Vontobel & Co AG (the "GLOBAL COORDINATOR")
Vector Securities International, Inc.
Vontobel Securities Ltd., New York Branch
(collectively, the "MANAGERS")
c/o Bank J. Vontobel & Co AG
Bahnhofstrasse 3
8022 Zurich
Switzerland
Dear Sirs:
This agreement relates to the proposed offer and sale of 1,500,000 shares of
common stock, par value $0.001 per share (the "COMMON STOCK") of Centaur
Pharmaceuticals, Inc., a Delaware corporation (the "COMPANY") pursuant to the
issuance and sale by the Company of shares of Common Stock as follows (the
"OFFERING"):
(a) On July 10, 1998, August 7, 1998, August 24, 1998, September 18, 1998 and
October 6, 1998, at meetings of the Board of Directors of the Company duly
called and held at which quorum were present throughout, the Board of
Directors duly adopted resolutions authorizing the issuance and sale of
an aggregate of 1,500,000 new shares (the "OFFERED SHARES") of Common
Stock by the Company.
(b) The Company proposes, subject to the terms and conditions stated herein, to
issue and sell the Offered Shares to the Managers as set out herein.
<PAGE>
2
1. Sale, Underwriting and Purchase
-------------------------------
Subject to the terms and conditions herein set forth:
(a) The Company agrees to sell to each Manager named in Schedule 1 hereto
the Offered Shares with effect from the Closing Date (as defined in
Section 4 hereof) at a price of $___ per share (the "OFFER PRICE");
and each such Manager agrees, severally and not jointly, to purchase
from the Company such number of Offered Shares as is set forth for
such Manager on Schedule 1, at the Offer Price. The Company shall not
be obligated to sell any Offered Shares unless all of the Offered
Shares are purchased by the Managers pursuant to this Agreement.
(b) In consideration of the agreement by the Managers to purchase the
Offered Shares as set forth above, the Company shall pay to the Global
Coordinator on behalf of the Managers a commission of 5.5 per cent of
the Offer Price for each Offered Share purchased from it (the
"COMMISSION"). The Global Coordinator shall be entitled to deduct the
Commission from the Offer Price to be paid for the Offered Shares
pursuant to Section 4 of this Agreement.
(c) The Company understands that Bank J. Vontobel & Co AG proposes to make
a private placement of certain of the Offered Shares in Switzerland
and elsewhere outside the United States as soon as they deem advisable
after this Agreement has been executed and delivered. It is also
understood that, concurrently therewith, Vector Securities
International, Inc. and Vontobel Securities Ltd., New York Branch
propose to make an offering of the remaining Offered Shares in the
United States. The Offered Shares to be purchased by Bank J. Vontobel
& Co AG and offered and sold in Switzerland and elsewhere outside the
United States are referred to herein as the "International Offered
Shares" and the Offered Shares to be purchased by Vector Securities
International, Inc. and Vontobel Securities Ltd., New York Branch and
offered and sold in the United States are referred to herein as the
"U.S. Offered Shares."
(d) In connection with the offer and sale of the shares of Common Stock
to be sold under this Agreement, the Company has prepared
preliminary international prospectuses dated August 6, 1998 and
August 26, 1998 and a preliminary international prospectus dated
September 1998 in connection with the currently contemplated
placement (each an "INITIAL INTERNATIONAL PROSPECTUS"), and will
prepare a final international prospectus, expected to be dated
October 13, 1998 (the "INTERNATIONAL PROSPECTUS"), each in English,
for use in connection with the offer and sale of such shares. The
Company hereby confirms that it has authorized the use by the
Managers of each Initial International Prospectus (in each case
until the date of an Initial International Prospectus of more recent
date) and the International Prospectus, as the same may be amended
or supplemented by the Company from time to time, in connection with
the
<PAGE>
3
offer and sale of such shares, for the period during which a
prospectus is required by applicable law to be delivered in
connection with sales of such shares.
(e) The Company has filed with the Securities and Exchange Commission (the
"COMMISSION") a registration statement on Form S-1 (No. 333-57165)
under the Securities Act of 1933, as amended (the "1933 ACT") covering
the registration of the U.S. Offered Shares and any International
Offered Shares sold hereunder that are sold or resold in the United
States in transactions not exempt from registration under Section 4(1)
or 4(3) of the 1933 Act, including the related preliminary prospectus
or prospectuses. Promptly after execution and delivery of this
Agreement, the Company will either (i) prepare and file a prospectus
in accordance with the provisions of Rule 430A ("RULE 430A") of the
rules and regulations of the Commission under the 1933 Act (the "1933
ACT REGULATIONS") and paragraph (b) of Rule 424 ("RULE 424(B)") of the
1933 Act Regulations or (ii) if the Company has elected to rely upon
Rule 434 ("RULE 434") of the 1933 Act Regulations, prepare and file a
term sheet (a "TERM SHEET") in accordance with the provisions of Rule
434 and Rule 424(b). The information included in such prospectus or
in such Term Sheet, as the case may be, that was omitted from such
registration statement at the time it became effective but that is
deemed to be part of such registration statement at the time it became
effective (a) pursuant to paragraph (b) of Rule 430A is referred to as
"RULE 430A INFORMATION" or (b) pursuant to paragraph (d) of Rule 434
is referred to as "RULE 434 INFORMATION." Each prospectus used before
such registration statement became effective, and any prospectus that
omitted, as applicable, the Rule 430A Information or the Rule 434
Information, that was used after such effectiveness and prior to the
execution and delivery of this Agreement, is herein called a "U.S.
PRELIMINARY PROSPECTUS." Such registration statement, including the
exhibits thereto and schedules thereto at the time it became effective
and including the Rule 430A Information or the Rule 434 Information,
as applicable, is herein called the "REGISTRATION STATEMENT." Any
registration statement filed pursuant to Rule 462(b) of the 1933 Act
Regulations is herein referred to as the "RULE 462(B) REGISTRATION
STATEMENT," and after such filing the term "REGISTRATION STATEMENT"
shall include the Rule 462(b) Registration Statement. The final
prospectus in the form first furnished to Vontobel Securities Ltd.,
New York Branch and Vector Securities International, Inc. for use in
connection with the offering of the U.S. Offered Shares is herein
called the "U.S. PROSPECTUS." If Rule 434 is relied on, the term
"U.S. Prospectus" shall refer to the U.S. Preliminary Prospectus dated
October 1, 1998 together with the Term Sheet and all references in
this Agreement to the date of the Prospectus shall mean the date of
the Term Sheet. For purposes of this Agreement, all references to the
Registration Statement, any U.S. Preliminary Prospectus, the U.S.
Prospectus or any Term Sheet or any amendment or supplement to any of
the foregoing shall be deemed to include the copy filed with the
Commission pursuant to its Electronic Data Gathering, Analysis and
Retrieval system ("EDGAR"). The
<PAGE>
4
Company hereby confirms that it has authorized the use by Vontobel
Securities Ltd., New York Branch and Vector Securities
International, Inc. of each U.S. Preliminary Prospectus (in each
case until the date of a U.S. Preliminary Prospectus of more recent
date) and the U.S. Prospectus, as the same may be amended or
supplemented by the Company from time to time, in connection with
the offer and sale of the U.S. Offered Shares and by underwriters
and dealers for purposes of resales of shares of Common Stock in the
United States that are not exempt from Section 4(1) or 4(3) of the
Securities Act. The U.S. Prospectus and the International Prospectus
are herein collectively called the "PROSPECTUSES" and individually
each, a "PROSPECTUS."
2. Representations and Warranties
------------------------------
(a) The Company represents and warrants, as of the date hereof, to each
Manager that:
(i) Each of the Registration Statement and any Rule 462(b)
Registration Statement has become effective under the 1933 Act
and no stop order suspending the effectiveness of the
Registration Statement or any Rule 462(b) Registration Statement
has been issued under the 1933 Act and no proceedings for that
purpose have been instituted or are pending or, to the knowledge
of the Company, are contemplated by the Commission, and any
request on the part of the Commission for additional information
has been complied with.
At the respective times the Registration Statement, any Rule
462(b) Registration Statement and any post-effective amendments
thereto became effective, the Registration Statement, the Rule
462(b) Registration Statement and any amendments and supplements
thereto complied in all material respects with the requirements
of the 1933 Act and the 1933 Act Regulations and did not contain
an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make
the statements therein not misleading; any U.S. Prospectus, any
U.S. Preliminary Prospectus and any supplement thereto or
prospectus wrapper prepared in connection therewith, at their
respective times of issuance and (except with respect to any U.S.
Preliminary Prospectus) at the Closing Date, complied and will
comply in all material respects with the requirements of the 1933
Act and the 1933 Act Regulations; any International Prospectus,
any Initial International Prospectus and any supplement thereto
or prospectus wrapper prepared in connection therewith, at their
respective times of issuance and (except with respect to any
Initial International Prospectus) at the Closing Date, complied
and will comply in all material respects with the requirements of
the applicable laws or regulations of Switzerland. Neither any
Prospectus
<PAGE>
5
nor any amendments or supplements thereto (including any
prospectus wrapper), at the time such Prospectus or any such
amendment or supplement was issued and (except with respect to
any U.S. Preliminary Prospectus or Initial International
Prospectus) at the Closing Date, included or will include an
untrue statement of a material fact or omitted or will omit to
state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they
were made, not misleading. No U.S. Preliminary Prospectus, at
its time of issuance, included an untrue statement of a
material fact or omitted to state a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. If
Rule 434 is used, the Company will comply with the requirements
of Rule 434 and the U.S. Prospectus shall not be "materially
different", as such term is used in Rule 434, from the
prospectus included in the Registration Statement at the time
it became effective. The representations and warranties in this
subsection shall not apply to statements in or omissions from
the Registration Statement or any Prospectus made in reliance
upon and in conformity with information furnished to the
Company in writing by any Manager through Bank J. Vontobel & Co
AG expressly for use in the Registration Statement or any such
Prospectus.
Each U.S. Preliminary Prospectus and the prospectus filed as part
of the Registration Statement as originally filed or as part of
any amendment thereto, or filed pursuant to Rule 424 under the
1933 Act, complied when so filed in all material respects with
the 1933 Act Regulations and each U.S. Preliminary Prospectus and
the U.S. Prospectus delivered to the Managers and Vontobel
Securities Ltd., New York Branch and Vector Securities
International, Inc. for use in connection with this offering was
identical to the electronically transmitted copies thereof filed
with the Commission pursuant to EDGAR, except to the extent
permitted by Regulation S-T.
(ii) The authorized, issued and outstanding capital stock of the
Company is as set forth in each Prospectus in the column
entitled "Actual" under the caption "Capitalization" (except for
subsequent issuances, if any, pursuant to this Agreement,
pursuant to employee benefit plans referred to in each
Prospectus, pursuant to the conversion of the Company's preferred
stock on the Closing Date as described in each Prospectus or
pursuant to the exercise of options or warrants referred to in
each Prospectus). The shares of issued and outstanding capital
stock of the Company have been duly authorized and validly issued
and are fully paid and non-assessable; none of the outstanding
shares of capital stock of the Company was issued in violation of
the preemptive or other similar rights of any security holder of
the Company;
<PAGE>
6
(iii) Upon delivery of the Offered Shares to be delivered to the
Managers pursuant to Section 4 of this Agreement on the Closing
Date, and payment therefore as provided herein and therein, it
will have delivered good and valid title thereto to the Managers,
free and clear of all liens, pledges, encumbrances, equities and
claims; and there exists no agreement or arrangement with respect
to the voting, sale or disposition of the Offered Shares sold by
it;
(iv) The Offered Shares to be purchased by the Managers from the
Company have been duly authorized for issuance and sale to the
Managers pursuant to this Agreement and, when issued and
delivered by the Company pursuant to this Agreement against
payment of the consideration set forth herein and therein, will
be validly issued and fully paid and non-assessable; the Common
Stock conforms to all descriptions thereof contained in the
Prospectuses and such descriptions conform to the rights set
forth in the instruments defining the same; no holder of the
Offered Shares will be subject to personal liability by reason of
being such a holder; and the issuance of the Offered Shares is
not subject to the preemptive or other similar rights of any
security holder of the Company;
(v) Except as described in each of the Prospectuses, (i) there are no
outstanding securities of the Company convertible into or
exchangeable for, or warrants, rights or options to purchase from
the Company, or obligations of the Company to issue, the Common
Stock or any other class of shares of the Company; (ii) all of
the issued and outstanding capital stock of each subsidiary of
the Company (each a "SUBSIDIARY") has been duly authorized and
validly issued, is fully paid and non-assessable and is owned by
the Company, directly or indirectly, free and clear of any liens,
pledges, encumbrances, equities or claims; and (iii) none of the
outstanding shares of capital stock of any Subsidiary was issued
in violation of the preemptive or similar rights of any security
holder of such Subsidiary. The Subsidiaries of the Company,
considered in the aggregate as a single Subsidiary, do not
constitute a "significant subsidiary" as defined in Rule 1-02 of
Regulation S-X. To the extent any of the representations of the
Company in Section 3 of this Agreement relate to any Subsidiary
or Subsidiaries of the Company, such representation shall not be
deemed breached or to be incorrect as a result of any facts or
circumstances relating to such Subsidiary or Subsidiaries that
would not be reasonable likely to, singly or in the aggregate,
have a Material Adverse Effect (as hereinafter defined).
(vi) The accountants who certified the financial statements and
supporting schedules included in the Registration Statement are
independent public accountants as required by the 1933 Act and
the 1933 Act Regulations;
<PAGE>
7
(vii) Except as described in each of the Prospectuses, there has been
no action, suit, legal or arbitration proceeding by or against
the Company or any of its Subsidiaries within the last two years
and there is no such proceeding pending that has had, and the
Company does not believe that there are any threatened legal or
arbitration proceedings by or against it or any of its
Subsidiaries which would be reasonably likely, singly or in the
aggregate, to have a material adverse effect on the business or
financial condition of the Company and its Subsidiaries taken as
a whole a ("MATERIAL ADVERSE EFFECT");
(viii) (A) The Company and its Subsidiaries own or have had licensed
to them or otherwise have the benefit or use under the authority
of the owners thereof of all patents, patent rights, inventions,
trademarks, service marks, trade names and copyrights (in each
case, registered or not) which are necessary for the conduct of
the business of the Company and its Subsidiaries as currently
conducted as described in each Prospectus; (B) there are no
material unresolved claims that the Company or any of its
Subsidiaries has infringed the patents, patent rights,
inventions, trademark rights, service marks, trade names or
copyrights of others and, to the best knowledge of the Company,
no persons are infringing the patents, patent rights, inventions,
trademark rights, service marks, trade names or copyrights of the
Company or any of its Subsidiaries, in each case in this clause
(B) which would be reasonably likely to, singly or in the
aggregate, have a Material Adverse Effect;
(ix) The Company and each of its Subsidiaries has all material
concessions, licenses, franchises, permits, authorizations,
approvals and orders of and from all governmental regulatory
officials and bodies that are necessary to own or lease its
properties and to conduct its business as currently
conducted;
(x) No material labour dispute with the employees of the Company or
any of its Subsidiaries exists or is threatened or imminent;
(xi) The Company and each of its Subsidiaries has obtained any
permits, consents and authorizations required to be obtained by
it under laws or regulations relating to the protection of the
environment or concerning the handling, storage, disposal or
discharge of toxic materials (collectively "ENVIRONMENTAL LAWS")
in order to conduct their business as described in the
Prospectuses, and any such permits, consents and authorizations
remain in full force and effect. The Company and each of its
Subsidiaries is in compliance with the Environmental Laws in all
material respects, and there is no pending or, to the Company's
knowledge, threatened, action or
<PAGE>
8
proceeding against the Company or any or its Subsidiaries
alleging violations of the Environmental Laws;
(xii) Except as described in each of the Prospectuses, neither the
Company nor any of its Subsidiaries is currently prohibited from
paying any dividends or from making any other distribution on the
Company's or such Subsidiary's capital stock, respectively, out
of positive retained earnings or from repaying to the Company or
its stockholders, respectively, any loans or advances to such
Subsidiary from the Company or to the Company from such
stockholders, as the case may be;
(xiii) Neither the Company nor any of its Subsidiaries is (A) in
violation of its charter or by-laws or (B) except as described
in each of the Prospectuses, in default in the performance or
observance of any material obligation, agreement, covenant or
condition contained in any material contract, indenture,
mortgage, deed of trust, loan or credit agreement, note, lease or
other agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which it or any of them may be
bound, or to which any of the property or assets of the Company
or any Subsidiary is subject;
(xiv) Since the earlier of (i) the respective dates as of which the
information is given in the Registration Statement, each
Prospectus or (ii) June 30, 1998, (A) neither the Company nor
any of its Subsidiaries has sustained any material loss or
interference with its business from fire, explosion, flood or
other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or
decree, (B) there has not been any change in the capital stock
of the Company, or any increase in long-term debt of the
Company and its Subsidiaries taken as a whole (except (i) as
described in each Prospectus, (ii) pursuant to this Agreement,
(iii) pursuant to grants under employee benefit plans referred
to in each Prospectus, (iv) pursuant to the conversion of the
Company's preferred stock on the Closing Date as described in
each Prospectus or (v) pursuant to the exercise of options or
warrants referred to in each Prospectus), (C) there has not
been any significant change, when compared to the comparable
period in the prior year, in net loss or net loss per share of
the Company and its Subsidiaries taken as a whole (except as
contemplated by each Prospectus), and (D) there has not been
any material adverse change, or any development reasonably
likely to result in a material adverse change, in or affecting
the condition (financial or otherwise), business, stockholders'
equity or results of operations of the Company and its
Subsidiaries taken as a whole;
<PAGE>
9
(xv) The financial statements included in the Registration Statement
and each Prospectus, together with the related schedules and
notes, present fairly in all material respects the financial
position of the Company at the dates indicated and the statements
of operations, stockholders' equity and cash flows of the Company
for the periods specified; said financial statements have been
prepared in conformity with United States generally accepted
accounting principles ("GAAP") applied on a consistent basis
throughout the periods involved. The supporting schedules
included in the Registration Statement present fairly in
accordance with GAAP the information required to be stated
therein. The selected financial data and the summary financial
data included in each Prospectus have been compiled on a basis
consistent with that of the audited financial statements included
in the Registration Statement;
(xvi) The Company and each of its Subsidiaries has been duly
organized and is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation,
with full corporate power and authority to enter into this
Agreement and consummate the transactions contemplated herein and
therein (in the case of the Company) and to own its properties
and conduct its business as currently conducted, and has been
duly qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of each
jurisdiction other than its jurisdiction of incorporation in
which it owns or leases properties or conducts any business so as
to require such qualification, except where the failure to be so
qualified or to be in good standing would not, individually or in
the aggregate, be reasonably likely to have a Material Adverse
Effect;
(xvii) This Agreement has been duly authorized, executed and
delivered by the Company and (other than the provisions of
Section 9 hereof, as to which the Company makes no
representation) constitutes the legal, valid, binding and
enforceable obligation of the Company, subject to applicable
bankruptcy, insolvency or similar laws affecting creditors'
rights generally and subject, as to enforceability, to general
principles of equity;
(xviii) The execution, delivery and performance of this Agreement by
the Company and the consummation of the transactions contemplated
herein and therein (including the issuance and sale of the
Offered Shares and the use of the proceeds from the sale of the
Offered Shares as described in each Prospectus under the heading
"Use of Proceeds") and compliance by the Company with its
obligations hereunder have been duly authorized by all necessary
corporate action and do not, whether with or without the giving
of notice or passage of time or both, conflict with or constitute
a breach of, or default or Repayment Event (as defined below)
under, or result in the creation or imposition of any
<PAGE>
10
lien, charge or encumbrance upon any property or assets of the
Company or any Subsidiary pursuant to, any contract, indenture,
mortgage, deed of trust, loan or credit agreement, note, lease
or other agreement or instrument to which the Company or any of
its Subsidiaries is a party or by which it or any of them may
be bound, or to which any of the property or assets of the
Company or any Subsidiary is subject (except for such
conflicts, breaches or defaults or liens, charges or
encumbrances that would not, singly or in the aggregate, be
reasonably likely to result in a Material Adverse Effect or
impair the ability of the Company to consummate, or otherwise
materially adversely affect, the transactions contemplated
herein), nor will such action result in any violation of the
provisions of the charter or by-laws of the Company or any
Subsidiary or any applicable law, statute, rule, regulation,
judgment, order, writ or decree of any government, government
instrumentality or court, domestic or foreign, having
jurisdiction over the Company or any Subsidiary or any of their
assets, properties or operations (except, with result to
foreign jurisdictions, for actions taken with the actual
knowledge or prior consent of the Global Coordinator). As used
herein, a "REPAYMENT EVENT" means any event or condition which
gives the holder of any note, debenture or other evidence of
indebtedness (or any person acting on such holder's behalf) the
right to require the repurchase, redemption or repayment of all
or a portion of such indebtedness by the Company or any
Subsidiary;
(xix) No filing with, or authorization, approval, consent, license,
order, registration, qualification or decree of, any court or
governmental authority or agency is necessary or required for the
performance by the Company of its obligations hereunder, in
connection with the offering, issuance or sale of the Offered
Shares hereunder or the consummation of the transactions
contemplated by this Agreement, except (i) such as have been
already obtained and are in full force and effect or as may be
required under the 1933 Act or the 1933 Act Regulations or United
States state securities laws, (ii) such as have been obtained
under the laws and regulations of jurisdictions outside the
United States in which the Offered Shares are offered, or (iii)
as may be required by the U.S. Securities and Exchange Commission
for the performance of the Company's obligations under Section 9
hereof; provided that no representation is made as to the
compliance of the Offering with the securities laws of
jurisdictions other than the United States and Switzerland.
(xx) There are no contracts or documents which are required to be
described in the Registration Statement or each Prospectus or to
be filed as exhibits to the Registration Statement which have not
been so described or filed as required;
<PAGE>
11
(xxi) The Company is not, and upon the issuance and sale of the
Offered Shares as contemplated herein and the application of the
net proceeds therefrom as described in each Prospectus will not
be, an "investment company" or an entity "controlled" by an
"investment company" as such terms are defined in the Investment
Company Act of 1940, as amended;
(xxii) Except as described in each Prospectus, there are no persons
with registration rights or other similar rights to have any
securities of the Company registered pursuant to the Registration
Statement or otherwise registered by the Company under the 1933
Act;
(xxiii) The Company has complied with, and is and will be in
compliance with, the provisions of that certain Florida act
relating to disclosure of doing business with Cuba, codified as
Section 517.075 of the Florida statutes, and the rules and
regulations thereunder, or is exempt therefrom;
(xxiv) Except as disclosed in each Prospectus, no issue, stamp or
other transactional duty or tax is payable by or on behalf of any
purchaser of Offered Shares from the Company or the Managers in
connection with the sale and delivery by it of Offered Shares to
or for the respective accounts of such purchaser or the Managers
in the manner contemplated by this Agreement; and
(xxv) The Company and its Subsidiaries have good and marketable title
to all real property owned by the Company and its Subsidiaries
and good title to all other material properties owned by them, in
each case free and clear of all mortgages, pledges, liens,
security interests, claims, restrictions or encumbrances of any
kind except such as (a) are described in each Prospectus or (b)
do not, singly or in the aggregate, materially affect the value
of such property and do not interfere with the use made and
proposed to be made of such property by the Company or any of its
Subsidiaries; and all of the leases and subleases material to the
business of the Company and its Subsidiaries, considered as one
enterprise, and under which the Company or any of its
Subsidiaries holds properties described in each Prospectus, are
in full force and effect, and neither the Company nor any
Subsidiary has any notice of any material claim of any sort that
has been asserted by anyone adverse to the rights of the Company
or any Subsidiary under any of the leases or subleases mentioned
above, or affecting or questioning the rights of the Company or
such Subsidiary to the continued possession of the leased or
subleased premises under any such lease or sublease.
<PAGE>
12
3. Offering and Placement by the Managers
--------------------------------------
(a) International Offered Shares. It is understood that Bank J. Vontobel
----------------------------
& Co AG proposes to sell the International Offered Shares to a
limited number of institutional and private investors as set forth
in the Initial International Prospectus prepared in connection with
the currently contemplated placement and the International
Prospectus and such Manager hereby represents and warrants to, and
agrees with the Company that:
(i) (A) The International Offered Shares may not be initially
offered or sold by it within the United States or to any
dealer who does not so agree. The International Offered
Shares have been registered in the United States solely
for purposes of the subsequent sale or resale of the
International Offered Shares in the United States in
transactions not exempt from registration under Section
4(1) or 4(3) of the Securities Act. It will not distribute
any prospectus (as defined in the 1933 Act) relating to
the Common Stock or the Offering in the United States or
to any dealer who does not so agree (except as
contemplated by clause (ii) below). "United States" means
the United States of America (including the States and the
District of Columbia), its territories, possessions and
other areas subject to its jurisdiction.
(B) It will comply with prospectus delivery requirements in
the United States with respect to offers and sales of the
Common Stock, including, to the extent applicable,
delivery of a copy of the U.S. Prospectus to any purchaser
or offeree within the United States with respect to any
transaction that is part of this distribution or that
occurs within 365 days after the initial listing of the
Common Stock on the Swiss Exchange.
(ii) (A) It has not offered or sold and will not offer or sell any
International Offered Shares in the United Kingdom except in
circumstances which do not constitute an offer to the
public within the meaning of the Public Offer of
Securities Regulations 1995 (the "REGULATIONS");
(B) It has complied and will comply with all applicable
provisions of the Financial Services Act 1986 and the
Regulations with respect to anything done by it in
relation to the International Offered Shares in, from or
otherwise involving the United Kingdom; and
(C) It has only issued or passed on, and will only issue or
pass on, in the United Kingdom, any Initial International
Prospectus, the
<PAGE>
13
International Prospectus or any other document received by
it in connection with the offering of the International
Offered Shares to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 (as
amended) or is a person to whom any Initial International
Prospectus, the International Prospectus or the relevant
document may otherwise lawfully be issued or passed on;
(iii) No action has been or will be taken in any jurisdiction by such
Manager that would constitute a public offering of the
International Offered Shares or permit possession or distribution
of any Initial International Prospectus, the International
Prospectus or any other offering or publicity material relating
to the International Offered Shares in any country or
jurisdiction where action for that purpose is required. Each
Manager will comply with all applicable laws and regulations in
each jurisdiction in which it acquires, offers, sells or delivers
the International Offered Shares or has in its possession or
distributes an Initial International Prospectus, the
International Prospectus or any such other material. Such
Manager will obtain any consent, approval or permission required
by it for, the acquisition, offer, sale or delivery by it of the
International Offered Shares under the laws and regulations in
force in any jurisdiction to which it is subject or in or from
which it makes any acquisition, offer, sale, or delivery. Such
Manager is not authorized to make any representation or use any
information in connection with the issue and sale of the
International Offered Shares other than as contained in an
Initial International Prospectus, the International Prospectus or
any amendment or supplement thereto;
(iv) It has complied and will comply with all applicable Swiss laws
(including, without limitation, the Swiss Code of Obligations
(Schweizerisches Obligationenrecht) and the Swiss Stock Exchange
Act (Schweizerisches Borsen-und-Effektenhandelsgesetz) as in
effect from time to time), rules, regulations and governmental
and Stock Exchange orders, if any;
(v) The International Offered Shares have not been and will not be
qualified for sale in Canada pursuant to a prospectus and will
not be offered or sold directly or indirectly in any province
or territory of Canada; and
(vi) It has not offered and will not offer or sell, or procure any
offers or sales of, any International Offered Shares in
Japan.
(b) U.S. Offered Shares.
-------------------
<PAGE>
14
It is understood that Vector Securities International, Inc. and
Vontobel Securities Ltd., New York Branch, proposes to offer the U.S.
Offered Shares for sale to the public in the United States as set
forth in the U.S. Prospectus.
4. Delivery and Payment
--------------------
(a) At the latest on October __, 1998, Bank J. Vontobel & Co AG shall have
received the Offered Shares to be purchased by the Managers through
the book-entry facilities of Schweizerische Effekten Giro AG ("SEGA")
from or on behalf of the Company for the accounts of such
Managers.
(b) On or before the Business Day immediately preceding the Closing Date,
The Global Coordinator, on behalf of the Managers, shall give
instructions to SEGA, as to the number of Offered Shares to be settled
on the Closing Date through the facilities of SEGA, together with the
details of such accounts. As used in this Agreement, "BUSINESS DAY"
means each day on which the Swiss Exchange ("SWISS EXCHANGE") is open
for dealings.
(c) By 10 a.m. (local time in Zurich) on October __, 1998 or at such other
time and date as the Company and the Global Coordinator on behalf of
the Managers may agree (the "CLOSING DATE"), the following payments
shall be made with value as of the Closing Date:
(i) Each Manager shall pay for the Offered Shares to be purchased by
it in Swiss Francs in the amounts and to the account or accounts
to be notified to it by the Global Coordinator.
(ii) The Global Coordinator on behalf of the Managers shall pay to the
Company in Swiss Francs the Offer Price less the Commission for
the Offered Shares and such amounts as are separately agreed in
writing with the Company.
All payments referred to in this Section 4 shall be credited with
value as of the Closing Date to the relevant parties at the designated
accounts.
(d) The documents to be delivered on the Closing Date, by or on behalf of
the parties hereto pursuant to Section 7 hereof will be delivered at
the offices of the Global Coordinator in Zurich or at such other
location as the parties hereto may agree (the "CLOSING LOCATION") on
the Closing Date.
<PAGE>
15
5. Agreements
----------
(a) The Company agrees with each Manager as follows:
(i) The Company, subject to Section 3(b), will comply with the
requirements of Rule 430A or Rule 434, as applicable, and will
notify The Global Coordinator immediately, and confirm the
notice in writing, (i) when any post-effective amendment to the
Registration Statement shall become effective, or any supplement
to the U.S. Prospectus or any amended U.S. Prospectus shall have
been filed, (ii) of the receipt of any comments from the
Commission, (iii) of any request by the Commission for any
amendment to the Registration Statement or any amendment or
supplement to the U.S. Prospectus or for additional information,
and (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of
any order preventing or suspending the use of any preliminary
prospectus, or of the suspension of the qualification of the
Offered Shares for offering or sale in any jurisdiction, or of
the initiation or threatening of any proceedings for any of such
purposes. The Company will promptly effect the filings necessary
pursuant to Rule 424(b) and will take such steps as it deems
necessary to ascertain promptly whether the form of prospectus
transmitted for filing under Rule 424(b) was received for filing
by the Commission and, in the event that it was not, it will
promptly file such prospectus. The Company will make every
reasonable effort to prevent the issuance of any stop order and,
if any stop order is issued, to obtain the lifting thereof at
the earliest possible moment.
(ii) The Company will give the Global Coordinator notice of its
intention to file or prepare any amendment to the Registration
Statement (including any filing under Rule 462(b)), any Term
Sheet or any amendment, supplement or revision to either the
prospectus included in the Registration Statement at the time it
became effective or to any Prospectus, will furnish the Global
Coordinator with copies of any such documents a reasonable amount
of time prior to such proposed filing or use, as the case may be,
and will not file or use any such document to which the Global
Coordinator or counsel for the Managers shall object in good
faith.
(iii) The Company has furnished or will deliver to the Managers and
counsel for the Managers, without charge, signed copies of the
Registration Statement as originally filed and of each amendment
thereto (including exhibits filed therewith) and signed copies of
all consents and certificates of experts, and will also deliver
to the Managers, without charge, a conformed copy of the
Registration Statement as originally filed and of each amendment
thereto
<PAGE>
16
(without exhibits) for each of the Managers. The copies of the
Registration Statement and each amendment thereto furnished to
the Managers will be identical to the electronically transmitted
copies thereof filed with the Commission pursuant to EDGAR,
except to the extent permitted by Regulation S-T.
(iv) The Company will furnish to each Manager, without charge, during
the period when the U.S. Prospectus is required to be delivered
under the 1933 Act, such number of copies of the U.S. Prospectus
(as amended or supplemented) as such Manager may reasonably
request. The U.S. Prospectus and any amendments or supplements
thereto furnished to the Managers will be identical to the
electronically transmitted copies thereof filed with the
Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T. The Company has delivered to each Manager,
without charge, as many copies of each Initial International
Prospectus as such Manager reasonably requested and will furnish
to each Manager, without charge, such number of copies of the
International Prospectus (as amended or supplemented) as such
Manager may reasonably request.
(v) The Company will comply with the 1933 Act and the 1933 Act
Regulations so as to permit the completion of the distribution
of the Offered Shares as contemplated in this Agreement and in
the Prospectuses. If at any time when a prospectus is required
by applicable law to be delivered by the Managers in connection
with sales of the Offered Shares, any event shall occur or
condition shall exist as a result of which it is necessary, in
the reasonable opinion of counsel for the Managers or for the
Company, to amend the Registration Statement or amend or
supplement any Prospectus in order that such Prospectus will not
include any untrue statements of a material fact or omit to
state a material fact necessary in order to make the statements
therein not misleading in the light of the circumstances
existing at the time it is delivered to a purchaser, or if it
shall be necessary, in the reasonable opinion of such counsel,
at any such time to amend the Registration Statement or amend or
supplement any Prospectus in order to comply with the
requirements of applicable law, the Company will (i) with
respect to the U.S. Prospectus, promptly prepare and file with
the Commission, subject to Section 5(a)(ii), such amendment or
supplement as may be necessary to correct such statement or
omission or to make the Registration Statement or the U.S.
Prospectus comply with such requirements, (ii) with respect to
any Initial International Prospectus or the International
Prospectus, supplement such prospectus to correct such statement
or omission and (iii) furnish to the Managers such number of
copies of such amendment or supplement as the Managers may
reasonably request.
<PAGE>
17
(vi) The Company will use its reasonable efforts, in cooperation with
the Managers, to qualify the Offered Shares for offering and sale
under the applicable securities laws of such United States states
and such other jurisdictions (domestic or foreign) as The Global
Coordinator may reasonably designate and to maintain such
qualifications in effect for a period of one year from the later
of the effective date of the Registration Statement and any Rule
462(b) Registration Statement (or such lesser period as may be
required under applicable law); provided, however, that the
-------- -------
Company shall not be obligated to file any general consent to
service of process or to qualify as a foreign corporation or as
a dealer in securities in any jurisdiction in which it is not so
qualified or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise so
subject. In each jurisdiction in which the Offered Shares have
been so qualified, the Company will file such statements and
reports as may be required by the laws of such jurisdiction to
continue such qualification in effect for a period of one year
from the effective date of the Registration Statement and any
Rule 462(b) Registration Statement (or such lesser period as may
be required under applicable law).
(vii) The Company will make generally available to its
securityholders as soon as practicable an earnings statement for
the purposes of, and to provide the benefits contemplated by, the
last paragraph of Section 11(a) of the 1933 Act.
(viii) The Company will use the net proceeds received by it from the
sale of the Offered Shares in the manner specified in each
Prospectus under "Use of Proceeds".
(ix) The Company, during the period when the U.S. Prospectus is
required to be delivered under the 1933 Act or the Securities
Exchange Act of 1934 (the "1934 Act"), will file all documents
required to be filed with the Commission pursuant to the 1934
Act within the time periods required by the 1934 Act and the
rules and regulations of the Commission thereunder.
(x) The Company will file with the Commission such information on
Form 10-Q or Form 10-K as may be required pursuant to Rule 463 of
the 1933 Act Regulations.
(xi) The Company will not issue shares of Common Stock or other
securities convertible or exchangeable into shares of Common
Stock or representing rights to subscribe for shares of Common
Stock, for a period from the date hereof until December 31, 1999,
other than (i) pursuant to the exercise of options and warrants
outstanding as of the date hereof or conversion of convertible
securities outstanding on the date hereof, (ii) pursuant to
the
<PAGE>
18
exercise of options granted, or the purchase of shares, under the
Company's employee benefit plans existing on the date hereof,
(iii) in connection with any acquisition of a company, technology
or product, or any research, development, manufacturing or
marketing collaboration, or any other transaction where the
primary consideration for the issuance of the shares is other than
cash, (iv) up to 100,000 shares for miscellaneous purposes or (v)
pursuant to this Agreement, unless (A) the issuance is approved by
The Global Coordinator (which approval may not unreasonably be
withheld), (B) the issuance is approved by a majority of the
Company's stockholders present, in person or by proxy, at a
stockholder meeting at which a quorum is present, or by the
written consent of holders of a majority of the Company's
outstanding Common Stock, (C) the Common Stock is then listed, or
designated for listing on notice of issuance, on the Swiss
Exchange, the Nasdaq National Market, the New York Stock Exchange,
the American Stock Exchange or the Neuer Markt or (D) the
Company's stockholders are provided with the right to purchase
their pro rata share of the issuance; and
(xii) It will bear and pay any issue, stamp or other transactional
duty or tax (including interest and penalties, if any) payable in
connection with the issue of the Offered Shares.
6. Payment of Expenses
-------------------
The costs and expenses listed in clauses (a) - (f) below shall be borne by
the Managers; provided that the Company covenants and agrees with the
several Managers that, in addition to their other obligations hereunder
upon the purchase by the Managers of all of the Offered Shares, it will pay
or cause to be paid to the Global Coordinator for its own account up to a
fixed sum in the aggregate amount of CHF 600,000 to cover the following
costs and expenses (including costs and expenses incurred in connection
with the Offering and in connection with the efforts of the Managers and
the Company with respect to the Offering as previously contemplated as a
public offering to be listed on the Swiss Exchange):
(a) all expenses in connection with the preparation, printing and filing
of the Registration Statement, each Initial International Prospectus,
each U.S. Preliminary Prospectus, and any Term Sheets and each
Prospectus and any amendments and supplements thereto and the mailing
and delivering of copies thereof to the Managers;
(b) the out-of-pocket expenses (including fees and disbursements of legal
counsel to the Managers) incurred by the Global Coordinator on behalf
of the Managers in connection with the transactions contemplated by
this Agreement;
<PAGE>
19
(c) the cost and expenses of the Global Coordinator in connection with
"road show" presentations to be made to prospective investors;
(d) the cost of preparing certificates in definitive form representing
Offered Shares if required by the initial purchasers thereof in
connection with the Offering;
(e) the fees and expenses of apr AG in connection with the Offering other
than costs and expenses covered by clause (c) below; and
(f) all other expenses of the Managers and the Global Coordinator.
In the event that all of the Offered Shares are not sold by the Company to
the Managers, other than by reason of a breach of this Agreement by the
Company or any Manager, as the case may be, then the Company will pay or
cause to be paid to Bank J. Vontobel & Co AG for its own account up to a
fixed sum in the aggregate amount of CHF 300,000.
Subject to Section 11, no expenses of the Managers are payable by the
Company other than as expressly set forth in this Section G.
In addition, the Company covenants and agrees with the several Managers
that, in addition to their other obligations hereunder, it will bear the
following costs:
(a) the fees and expenses of the Company's counsel, accountants and other
advisors;
(b) the fees and expenses of any transfer agent or registrar for the
Offered Shares; and
(c) the fees and expenses of apr AG in connection with the previously
proposed Swiss Exchange listed public offering (other than fees and
expenses of apr AG related to the previously proposed public
offering in Germany).
7. Conditions Precedent
--------------------
(a) The obligations of the several Managers to purchase and pay for the
Offered Shares are subject to the satisfaction of the following
conditions precedent:
(i) The Registration Statement, including any Rule 462(b)
Registration Statement, has become effective and at the Closing
Date no stop order suspending the effectiveness of the
Registration Statement shall have been issued under the 1933 Act
or proceedings therefor initiated or threatened by the
Commission, and any request on the part of the Commission for
additional information shall have been complied with to the
reasonable satisfaction of counsel to the Managers. A prospectus
containing the Rule
<PAGE>
20
430A Information shall have been filed with the Commission in
accordance with Rule 424(b) (or a post-effective amendment
providing such information shall have been filed and declared
effective in accordance with the requirements of Rule 430A) or,
if the Company has elected to rely upon Rule 434, a Term Sheet
shall have been filed with the Commission in accordance with
Rule 424(b);
(ii) Each of the representations and warranties of the Company
contained herein shall be true and correct in all material
respects at the Closing Date, as if made at the Closing Date,
and all covenants and agreements herein contained to be performed
on the part of the Company and all conditions herein contained to
be fulfilled or complied with by the Company at or prior to the
Closing Date shall have been performed, fulfilled or complied
with in all material respects;
(iii) delivery to the Managers, except to the extent waived by the
Global Coordinator in writing on the Closing Date:
(A) legal opinions, substantially in the agreed form, from (aa)
Fenwick & West LLP, U.S. counsel to the Company, (bb) Lenz
& Staehelin, Swiss counsel to the Company, (cc) Burns,
Doane, Swecker & Mathis, patent counsel to the Company, (dd)
Kleinfeld, Kaplan and Backer, regulatory counsel to the
Company and (ee) Shearman & Sterling, counsel to the
Managers;
(B) a certificate addressed to the Managers signed by the
Company and dated the Closing Date to the effect stated in
Section 7(a)(ii);
(C) a comfort letter from the auditors of the Company
substantially in the agreed form;
(D) a copy of the Company's Certificate of Incorporation,
certified by the Secretary of State of the State of Delaware
as of the Closing Date or a date as near thereto as
possible;
(iv) the resolutions of the Board of Directors of the Company
authorizing and approving the Offering and all actions taken or
to be taken in connection therewith including, without
limitation, the execution and delivery of this Agreement and the
implementation of all transactions contemplated hereby and
thereby, certified by the Secretary of the Company; and
<PAGE>
21
(v) each of the executive officers and directors of the Company
persons listed on Schedule 2 hereto and any greater than 1%
stockholder of the Company shall have agreed that they will not,
for a period of 180 days following the effective date of the
Registration Statement, directly or indirectly, offer to sell,
grant any option for the sale of, or otherwise dispose of, any
shares of Common Stock or securities convertible into or
exchangeable for any such shares, except with the prior written
consent of the Global Coordinator.
Documents in the agreed form means documents in the form signed for
identification on the date hereof by Shearman & Sterling.
(b) If any condition specified in this Section 7 shall not have been
fulfilled when and as required to be fulfilled, this Agreement may be
terminated by The Global Coordinator on behalf of the Managers by
notice to the Company at any time at or prior to the Closing Date,
and, subject to Sections 6 and 11 hereof, such termination shall be
without liability of any party to any other party except that any
liability (including as to indemnification) as a result of any prior
breach of the provisions of this Agreement shall continue in full
force and effect.
8. Termination
-----------
(a) The Global Coordinator (on behalf of the Managers) may, by notice to
the Company, terminate this Agreement at any time whereupon the
obligation of the Managers to purchase and pay for the Offered Shares
and to procure investors shall terminate if, in the opinion of The
Global Coordinator, (i) there has been, since the time of execution of
this Agreement, any material adverse change in the financial
condition, earnings or business affairs of the Company and its
Subsidiaries considered as one enterprise or (ii) there has occurred
any material adverse change in the financial markets in the United
Kingdom, the United States, Switzerland or the international financial
markets, any outbreak of hostilities or escalation thereof or other
calamity or crisis or any change or development involving a
prospective change in national or international political, financial
or economic conditions in the United Kingdom, the United States or
Switzerland and the effect of any such material adverse change,
outbreak, escalation, calamity, crisis, change or development is such
as to make it impossible or impracticable to market the Offered Shares
or to enforce contracts for the sale of the Offered Shares, or (iii)
trading generally on either the Swiss Exchange, the London Stock
Exchange, the New York Stock Exchange or the Nasdaq National Market
has been suspended or limited, or minimum or maximum prices for
trading have been fixed, or maximum ranges for prices for securities
have been required, by any of said exchanges or by such system or by
order of the United States Securities and Exchange Commission, the
National Association of Securities Dealers, Inc. or any other
governmental authority, or (iv) a banking moratorium has
<PAGE>
22
been declared by the United States, New York State, Switzerland or
the United Kingdom, or (v) there has been a material change, or an
official announcement by a competent authority of a prospective
material change, in Swiss, United Kingdom or United States taxation
affecting the transfer of the Common Stock, or (vi) there has been
any material adverse change in currency rates between the U.S.
dollar and the Swiss franc, or (vii) additional exchange controls
are imposed by Switzerland or the United States.
(b) In the event that this Agreement is terminated pursuant to this
Section 8, the parties to this Agreement shall be released and
discharged from their respective obligations hereunder except for any
liability (including as to indemnification) of any party hereto as a
result of any prior breach by it of this Agreement. In such event any
costs, charges and expenses shall be paid as provided for in Section
6.
9. Indemnification
---------------
(a) The Company will indemnify and hold harmless each Manager against any
losses, claims, damages or liabilities, joint or several, to which
such Manager may become subject, under Swiss law, the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon (i) an
untrue statement or alleged untrue statement of a material fact
contained in any Initial International Prospectus, any U.S.
Preliminary Prospectus, the Registration Statement or any Prospectus,
including any amendment or supplement thereto, (ii) the omission or
alleged omission to state in any Initial International Prospectus, any
U.S. Preliminary Prospectus, the Registration Statement or any
Prospectus, including any amendment or supplement thereto, 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 or (iii) any breach by the Company of its representations,
warranties or obligations under this Agreement, and will reimburse
each Manager for any legal or other expenses reasonably incurred by
such Manager in connection with defending any such action or claim as
such expenses are incurred; provided that the Company shall not be
--------
liable to any Manager under this subsection (a) with respect to any
Initial International Prospectus or U.S. Preliminary Prospectus to the
extent that any loss, claim, damage or liability of such Manager
results from the fact that such Manager sold Offered Shares to a
person to whom there was not given or sent, at or prior to the written
confirmation of such sale, a copy of the International Prospectus or
U.S. Prospectus, as the case may be, as then amended or supplemented,
if the Company had previously furnished copies thereof to such Manager
and the loss, claim, damage or liability of such Manager results from
an untrue statement or omission of a material fact contained in an
Initial International
<PAGE>
23
Prospectus or U.S. Preliminary Prospectus that was corrected in the
International Prospectus or U.S. Prospectus, as the case may be (as
amended or supplemented).
(b) Each Manager will indemnify and hold harmless the Company against any
losses, claims, damages or liabilities to which the Company may become
subject, under Swiss law, the 1933 Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon (i) (A) an untrue statement or alleged
untrue statement of a material fact contained in any Initial
International Prospectus, any U.S. Preliminary Prospectus, the
Registration Statement or any Prospectus, including any amendment or
supplement thereto or (B) the omission or alleged omission to state in
any Initial International Prospectus, any U.S. Preliminary Prospectus,
the Registration Statement or any Prospectus, including any amendment
or supplement thereto, 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, in each case
to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in
any Initial International Prospectus, any U.S. Preliminary Prospectus,
the Registration Statement or any Prospectus or any such amendment or
supplement in reliance upon and in conformity with written information
furnished to the Company by such Manager through The Global
Coordinator expressly for use therein, or (ii) any breach by such
Manager of its representations, warranties or obligations in this
Agreement, and will reimburse the Company for any legal or other
expenses reasonably incurred by the Company in connection with
defending any such action or claim as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under subsection (a) or
(b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under such subsection, notify the
indemnifying party in writing of the commencement thereof; but the
omission so to notify the indemnifying party shall not relieve it from
any liability hereunder to the extent it is not materially prejudiced
as a result thereof and in any event shall not relieve it from any
liability which it may have otherwise than under this Agreement. In
case any such action shall be brought against any indemnified party
and it shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall have the option to assume the
defense thereof including the employment of legal advisors approved by
the indemnified party (such approval not to be unreasonably withheld),
subject to the payment by the indemnifying party of all expenses. Any
indemnified party shall have the right to employ separate legal
advisors in any such action and defend or participate in the defense
thereof, but the fees and expenses of such legal advisors shall be
borne by such indemnified party, unless the indemnifying party has
specifically authorised the employment thereof or has failed to assume
such defense and to employ legal advisors approved as a
<PAGE>
24
aforesaid for such purpose. The indemnifying party shall not be
liable to indemnify any indemnified party for any settlement of any
claim, action or demand made without its consent (such consent not
to be unreasonably withheld), unless the indemnifying party fails to
assume the defense thereof and to employ legal advisors as aforesaid
for such purpose.
(d) If the indemnification provided for in this Section 9 is unavailable
to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages
or liabilities (or actions in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and the Managers on the other from the
offering of the Offered Shares. If, however, the allocation provided
by the immediately preceding sentence is not permitted by applicable
law or if the indemnified party failed to give the notice required
under subsection (c) above, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in
such proportion as is appropriate to reflect not only such relative
benefits but also the relative fault of the Company on the one hand
and the Managers on the other in connection with the statements or
omissions which 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 Managers on the other shall be
deemed to be in the same proportion as the total net proceeds from the
Offering (before deducting expenses) received by the Company bear to
the total underwriting discounts and commissions received by the
Managers, in each case as set forth in the table on the cover page of
the Prospectuses. The 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 the Company on the
one hand or the Managers on the other and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and the Managers
agree that it would not be just and equitable if contributions
pursuant to this subsection (d) were determined by pro rata allocation
(even if the Managers were treated as one entity for such purpose) or
by any other method of allocation which does not take account of the
equitable considerations referred to above in this subsection (d).
The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this subsection (d) shall be deemed to include
any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or
claim. Notwithstanding the provisions of this subsection (d), no
Manager shall be required to contribute any amount in excess of the
amount by which the total price
<PAGE>
25
at which the Offered Shares underwritten by it and distributed to
the public were offered to the public exceeds the amount of any
damages which such Manager has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Managers' obligations in this
subsection (d) to contribute are several in proportion to their
respective underwriting obligations and not joint.
(e) The obligations of the Company under this Section 9 shall be in
addition to any liability which any of them may otherwise have and
shall extend, upon the same terms and conditions, to each officer and
director of each Manager and to each person, if any, who controls, is
controlled by or is under common control with any Manager; and the
obligations of the Managers under this Section 9 shall be in addition
to any liability which the respective Managers may otherwise have and
shall extend, upon the same terms and conditions, to each officer,
director and stockholder of the Company to the extent applicable and
to each person, if any, who controls, is controlled by or is under
common control with any of the foregoing (to the extent
applicable).
10. Representations and Indemnities to Survive
------------------------------------------
The respective indemnities, agreements, warranties and other statements of
the Company and the several Managers, as set forth in this Agreement or
made by or on behalf of them, respectively, pursuant to this Agreement,
shall remain in full force and effect, regardless of any investigation (or
any statements as to the results thereof) made by or on behalf of any
Manager or any officer or director of any Manager or any person who
controls, is controlled by or is under common control with any Manager, or
made by or on behalf of the Company or any officer or director of any of
the foregoing or any person who controls, is controlled by or is under
common control with the Company, and shall survive delivery of and payment
for the Offered Shares.
11. Reimbursement on Termination or Default
---------------------------------------
If for any reason any Offered Shares are not delivered by or on behalf of
the Company when and as required herein, and such non-delivery shall be a
result of a breach by the Company of its obligations hereunder, the Company
will reimburse the Managers through the Global Coordinator for all out-of-
pocket expenses approved in writing by the Global Coordinator, including
fees and disbursements of counsel, reasonably incurred by the Managers in
making preparations for the purchase, sale and delivery of the Offered
Shares not so delivered by the
<PAGE>
26
Company, but the Company shall then be under no further liability to any
Manager in respect of such Offered Shares, except as provided in Sections
9 hereof. Notwithstanding the foregoing, in the event of a default of a
Manager in respect of its obligation to purchase any Offered Shares, the
Company shall be under no further liability to such Manager. In any other
event, any costs, charges and expenses shall be paid as provided for in
Section 6.
12. Notices
-------
All statements, requests, notices and agreements, hereunder shall be in
writing with copies to each of the Global Coordinator and the Company, and
(i) if to the Managers shall be delivered or sent by international courier,
telex or facsimile transmission care of Bank J. Vontobel, Bahnhofstrasse 3,
8022 Zurich, Attention: Corporate Finance, facsimile transmission No. (+41-
1) 283-7075; and (ii) if to the Company shall be delivered or sent by
international courier or facsimile transmission to Centaur Pharmaceuticals,
Inc., 484 Oakmead Parkway, Sunnyvale, California 94086, Attention: Joe
Turner, facsimile transmission No. (408) 822-4350. Any such statements,
requests, notices or agreements shall take effect upon receipt
thereof.
13. Successors
----------
This Agreement shall be binding upon, and inure solely to the benefit of,
the Managers and the Company and, to the extent provided in Section 9
hereof, the officers, directors and stockholders of, and each person who
controls, is controlled by or is under common control with the Company or
any Manager, and their respective successors and assigns, and no other
person shall acquire or have any right under or by virtue of this
Agreement. No purchaser of any of the Offered Shares from any Manager shall
be deemed a successor or assign by reason merely of such purchase.
14. Governing Law
-------------
This Agreement shall be governed by and construed in accordance with the
substantive law of Switzerland.
15. Submission to Jurisdiction
--------------------------
The Company irrevocably (i) agrees that any legal suit, action or
proceeding against it brought by any Manager or by any officer or director
of any Manager or by any person who controls, is controlled by or is under
common control with any Manager arising out of or
<PAGE>
27
based upon this Agreement or the transactions contemplated herein shall
be brought in the competent commercial court (Handelsgericht) in Zurich,
Switzerland, (ii) waives, to the fullest extent it may effectively do so,
any objection which it may now or hereafter have to the laying of venue
of any such proceeding and (iii) submits to the exclusive jurisdiction of
such court in any such suit, action or proceeding.
16. Counterparts
------------
This Agreement may be executed by any one or more of the parties hereto in
any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the
same instrument.
17. Severability
------------
Whenever possible, each provision of this Agreement shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Agreement shall be unenforceable or invalid under
applicable law, such provision shall be ineffective only to the extent of
such unenforceability or invalidity and be replaced by such valid and
enforceable provision which the parties bona fide consider to match as
closely as possible the invalid or unenforceable provision, attaining the
same or a similar economic effect. The remaining provisions of this
Agreement shall under all circumstances continue to be binding and in full
force and effect.
<PAGE>
If the foregoing is in accordance with your understanding, please sign and
return to us 8 counterparts hereof, and upon the acceptance hereof by you, on
behalf of each of the Managers, this letter and such acceptance hereof shall
constitute a binding agreement between each of the Managers and the
Company.
Very truly yours,
CENTAUR PHARMACEUTICALS, INC.
By:_________________________________
Name:
Title:
By:_________________________________
Name:
Title:
Accepted as of the date hereof:
BANK J. VONTOBEL & CO AG
By:_________________________________
Name:
Title:
VECTOR SECURITIES INTERNATIONAL, INC.
VONTOBEL SECURITIES, LTD.,
NEW YORK BRANCH
By:_________________________________
Duly Authorized Attorneys
<PAGE>
SCHEDULE 1
----------
MANAGERS
<TABLE>
<CAPTION>
----------------------------------------------------
International Offered Shares U.S. Offered Shares
- -------------------------------------------------------------------------------
<S> <C> <C>
Bank J. Vontobel & Co AG
- -------------------------------------------------------------------------------
Vector Securities
International, Inc.
- -------------------------------------------------------------------------------
Vontobel Securities Ltd.,
New York Branch
- -------------------------------------------------------------------------------
Total
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE 2
----------
EXECUTIVE OFFICERS AND DIRECTORS
Brian D. Frenzel
John M. Carney
Joseph L. Turner
William A. Garland
Mark R. Collins
Graham K. Crooke
Steinar J. Engelsen
Charles R. Engles
Selvi Vescovi
<PAGE>
Exhibit 1.02
[Centaur Letterhead]
October __, 1998
Bank J. Vontobel & Co. AG
Bahnhofstrasse 3
CH-8022, Zurich
Switzerland
Ladies/Gentlemen:
This letter is to confirm our understanding regarding an expected future
underwritten public offering of Centaur Common Stock to be listed on the Swiss
Exchange in which Bank J. Vontobel ("Vontobel") would act as global coordinator.
As we are both aware, Centaur had planned to effect a $60-90 million
underwritten public offering of shares of its Common Stock in August/September
1998, with such shares to be listed on the Swiss Exchange and Bank Vontobel to
act as global coordinator. However, as a result of market conditions, such
offering (the "Postponed Offering") was not feasible, and we have instead agreed
------------------
to consummate a smaller financing in which Centaur will sell 1.5 million shares
of its Common Stock at $11.00 per share.
This will confirm our mutual intent to undertake an SEC registered,
underwritten public offering of Centaur Common Stock on the Swiss Exchange or
other mutually agreeable exchange, with Bank Vontobel as global coordinator, as
soon as market conditions permit. The terms and conditions of such offering (the
"Future Offering") and related corporate governance arrangements will generally
---------------
be as previously agreed in connection with the Postponed Offering, as reflected
in that certain Amendment No. 6 to Registration Statement on Form S-1 filed with
the Securities and Exchange Commission on September 4, 1998 (not including the
number of shares to be sold and whether such shares are primary or secondary,
and the offering price for such shares), and shall include, without limitation,
the following:
1. Centaur will register under the Securities Exchange Act of 1934.
2. Centaur will agree to comply with the referenced Nasdaq regulations.
3. Centaur will agree to the limitations on its ability to sell shares
for three years from the Future Offering, assuming that at least $25
million is raised by the Company in the offering.
4. All officers, directors and major stockholders shall agree to a 6
month lock-up.
<PAGE>
October __, 1998
Page 2
5. The underwriting commission will be 5.5%, with an additional 0.5% to
cover transaction expenses up to 600,000 Swiss Francs.
The parties further agree that the underwriting agreement and related
documentation that was prepared in connection with the Postponed Offering shall
be the basis for such documents in the Future Offering.
To implement this agreement, the parties agree that Vontobel shall inform
Centaur if and when it believes that market conditions are appropriate to
undertake the Future Offering, and the parties will then negotiate in good faith
as to the terms of the offering, including the number of shares to be offered
and whether such shares are primary or secondary, the offering price of such
shares and other appropriate terms and conditions. Delivery of the foregoing
notice by Vontobel shall in no way commit the parties to conduct the offering,
which will be subject to market conditions and mutual agreement as to terms and
conditions.
Centaur agrees that from the date hereof, until December 31, 1999, it will
not undertake any other financing whose primary purpose is to raise capital,
unless Vontobel is the lead underwriter/placement agent for such financing, or
Vontobel otherwise approves.
Bank Vontobel acknowledges that this agreement shall not limit nor relate
in any way to Centaur's ability to (i) raise money in connection with corporate
partnerships and other transactions in which a significant component of the
transaction is other than raising money in exchange for equity, (ii) enter into
merger and acquisition activities or (iii) take such action as it deems
appropriate to raise funds if in the good faith judgment of Centaur's Board of
Directors, such funds are needed by the Company and it does not appear
reasonably likely, after good faith discussions with Vontobel, that Vontobel
will be able to raise such funds on terms approximately as favorable as Centaur
could otherwise raise such funds.
The parties further agree that this agreement will terminate on December
31, 1999, or earlier upon the acquisition of Centaur. For this purpose "an
acquisition" shall mean a transaction in which the stockholders of the company
prior to a given transaction or series of related transactions own less than a
majority of the surviving entity after the transaction, or a sale of all or
substantially all assets.
<PAGE>
October __, 1998
Page 3
If the foregoing accurately sets forth our agreement please sign below
where indicated.
We look forward to a long and successful relationship with Vontobel and
appreciate all of your efforts to date.
Very truly yours,
Brian Frenzel
President and CEO
Bank J. Vontobel & Co. AG
______________________
<PAGE>
EXHIBIT 4.03
THIRD AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
This THIRD AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (this
"Agreement") is made and entered into as of February 14, 1997 by and among
---------
Centaur Pharmaceuticals, Inc., a Delaware corporation (the "Company"), the
-------
persons listed on Exhibit A-1 attached hereto (the "Prior Investors"), the
----------- ---------------
persons listed on Exhibit A-2 attached hereto (the "New Investors"), the persons
----------- -------------
listed on Exhibit B attached hereto (the "Stockholders"), Aberlyn Capital
--------- ------------
Management Limited Partnership, a Delaware limited partnership ("Aberlyn"), and
-------
Prospektiva Investments ("Prospektiva"). The New Investors and the Prior
-----------
Investors are collectively referred to herein as the "Investors." Aberlyn and
---------
Prospektiva are collectively referred to herein as the "Warrant Holders."
---------------
R E C I T A L S
- - - - - - - -
A. The Company, the Prior Investors, certain of the Stockholders and
Aberlyn are parties to the Amended and Restated Registration Rights Agreement
dated as of December 5, 1994 (the "Prior Agreement").
---------------
B. The New Investors have agreed to purchase from the Company, and
the Company has agreed to sell to the New Investors, shares of the Company's
Series D Preferred Stock ("Series D Stock") on the terms and conditions set
--------------
forth in that certain Series D Preferred Stock Purchase Agreement, dated of even
date herewith, by and among the Company and the New Investors (the "Series D
--------
Agreement").
- ---------
C. The Series D Agreement provides that, as a condition of Closing
under such Series D Agreement, the Company will enter into this Agreement and
the New Investors will be granted the rights set forth herein which shall be
pari passu with rights granted to the Prior Investors with respect to shares of
the Company's Series A Preferred Stock (the "Series A Stock"), the Company's
--------------
Series B Preferred Stock (the "Series B Stock") and/or the Company's Series C
--------------
Preferred Stock (the "Series C Stock") held by the Prior Investors, except that
--------------
the New Investors shall be granted a separate S-3 registration right.
D. The Company and the undersigned parties hereto who are parties to
the Prior Agreement desire to enter into this Agreement in order to amend,
restate and replace their rights and obligations under the Prior Agreement with
the rights and obligations set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises hereinafter set forth, the parties hereby agree as follows:
1.1 INFORMATION RIGHTS.
------------------
1.1 FINANCIAL INFORMATION. The Company covenants and agrees that,
---------------------
commencing on the date of this Agreement, for so long as any Investor holds at
least the
<PAGE>
designated number of shares of Series A Stock issued to it under that certain
Series A Stock Purchase Agreement dated as of August 31, 1992 (the "Series A
--------
Agreement") and/or shares of Series B Stock issued to it under that certain
- --------
Series B Stock Purchase Agreement dated as of July 16, 1993 (the "Series B
--------
Agreement") and/or shares of Series C Stock issued to it under that certain
- ---------
Series C Stock Purchase Agreement dated as of December 5, 1994 (the "Series C
--------
Agreement") and/or shares of Series D Stock issued to it under the Series D
- ---------
Agreement and/or the equivalent number (on an as-converted basis) of shares of
Common Stock of the Company ("Common Stock") issued upon the conversion of such
------------
shares of Series A Stock and/or Series B Stock and/or Series C Stock and/or
Series D Stock ("Conversion Stock"), or any combination thereof (collectively,
----------------
the "Series ABCD Based Stock"), the Company will:
-----------------------
(a) Annual Reports. Furnish to any Investor holding at least fifty
--------------
thousand (50,000) shares of Series ABCD Based Stock, as soon as practicable and
in any event within ninety (90) days after the end of each fiscal year of the
Company, a consolidated Balance Sheet as of the end of such fiscal year, a
consolidated Statement of Income and a consolidated Statement of Cash Flows of
the Company and its subsidiaries for such year, setting forth in each case in
comparative form the figures from the Company's previous fiscal year (if any),
all prepared in accordance with generally accepted accounting principles and
practices and audited by nationally recognized independent certified public
accountants;
(b) Quarterly Reports. Furnish to any Investor holding at least fifty
-----------------
thousand (50,000) shares of Series ABCD Based Stock, as soon as practicable, and
in any case within forty-five (45) days of the end of each fiscal quarter of the
Company (except the last quarter of the Company's fiscal year) the following:
(i) quarterly unaudited financial statements, including an unaudited Balance
Sheet, an unaudited Statement of Income and an unaudited Statement of Cash
Flows, all prepared in accordance with generally accepted accounting principles
and practices, other than footnote presentation and year-end adjustments,
consistently applied and all in reasonable detail; (ii) a comparison of such
statements to the Company's operating plan and budget; and (iii) a certificate
of the Chief Financial Officer of the Company explaining any significant
differences in the statements from the Company's operating plan and budget for
the period and certifying that such statements fairly present the consolidated
financial position and consolidated financial results of the Company for the
fiscal quarter covered;
(c) Monthly Reports. Furnish to any Investor holding at least one
---------------
hundred thousand (100,000) shares of Series ABCD Based Stock, as soon as
practicable, and in any case within forty-five (45) days of the end of each
calendar month (except the last month of the Company's fiscal year) the
following: (i) monthly unaudited financial statements, including an unaudited
Balance Sheet, an unaudited Statement of Income and an unaudited Statement of
Cash Flows, all prepared in accordance with generally accepted accounting
principles and practices, other than footnote presentation and year-end
adjustments, consistently applied and all in reasonable detail; (ii) a
comparison of such statements to the Company's operating plan and budget; and
(iii) a certificate of the Chief Financial Officer of the Company certifying
that such statements fairly present the
2
<PAGE>
consolidated financial position and consolidated financial results of the
Company for the fiscal period covered; and
(d) Annual Budget. Furnish to any Investor holding at least one
-------------
hundred thousand (100,000) shares of Series ABCD Based Stock, as soon as
practicable and in any event no later than thirty (30) days after the close of
each fiscal year of the Company, an annual operating plan and budget, prepared
on a monthly basis, for the next immediate fiscal year. The Company shall also
furnish to such Investor, within a reasonable time of its preparation,
amendments to the annual budget, if any.
(e) Confidentiality. Each Investor agrees to hold all information
---------------
received pursuant to this Section in confidence, not to use such information for
any purpose other than monitoring and/or evaluating its investment in the
Company and not to disclose any of such information to any third party, except
to the extent such information may be made publicly available by the Company;
provided, however, that, notwithstanding the foregoing and subject to the
- -------- -------
limitations hereinafter stated, nothing herein shall limit or impair any
Investor from disclosing (i) any information that is rightfully obtained from a
third party who is not obligated to maintain its confidentiality; (ii) any
information that is or that becomes generally available to the public other than
as a result of a breach by an Investor of its obligations under this Section
1.1(e); (iii) any information (including financial information) to its partners,
shareholders or advisors which such Investor discloses to its partners,
shareholders and/or advisors generally, provided that any such partner,
-------- ----
shareholder and/or advisor receiving information pursuant to this Section agrees
to be bound by this or a substantially similar non-use and confidentiality
provision, and provided further that no Investor shall disclose any proprietary
-------- -------
and confidential technical/scientific information without the Company's written
approval; or (iv) any information required to be disclosed by any governmental
body, provided that the Company is given fifteen (15) days advance written
-------- ----
notice unless such notice is not legally possible.
1.2 INSPECTION RIGHTS. The Company shall permit each Investor holding
-----------------
at least one hundred thousand (100,000) shares of Series ABCD Based Stock, at
such Investor's expense, to visit and inspect the Company's properties, to
examine its books of account and records and to discuss the Company's affairs,
finances and accounts with its officers and senior management, all at such
reasonable times as may be requested by such Investor. Each Investor agrees to
hold all information received from such inspections in confidence, not to use
such information for any purpose other than monitoring and/or evaluating its
investment in the Company, and not to disclose any of such information to any
third party, ex cept to the extent such information may be made publicly
available by the Company; provided, however, that, notwithstanding the foregoing
-------- -------
and subject to the limitations hereinafter stated, nothing herein shall limit or
impair any Investor from disclosing (i) any information that is rightfully
obtained from a third party who is not obligated to maintain its
confidentiality; (ii) any information that is or that becomes generally
available to the public other than as a result of a breach by an Investor of its
obligations under this Section 1.2; (iii) any information (including financial
information) to its partners, shareholders or advisors which such Investor
discloses to its partners, shareholders and/or advisors generally, provided that
-------- ----
any such partner, shareholder and/or
3
<PAGE>
advisor receiving information pursuant to this Section agrees to be bound by
this or a substantially similar non-use and confidentiality provision, and
provided further that no Investor shall disclose any proprietary and
- -------- -------
confidential technical/scientific information without the Company's written
approval; or (iv) any informati on required to be disclosed by any governmental
body, provided that the Company is given fifteen (15) days advance written
-------- ----
notice unless such notice is not legally possible.
1.3 TERMINATION OF CERTAIN RIGHTS. The Company's obligations under
-----------------------------
Sections 1.1 and 1.2 above will terminate upon the closing of the Company's
initial public offering of Common Stock pursuant to an effective registration
statement filed under the U.S. Securities Act of 1933, as amended (the
"Securities Act"). The Company's obligations under Sections 1.1 and 1.2 above
--------------
will also terminate immediately prior to the closing of the sale of not less
than 1.2 million shares of the Company's Common Stock for the account of the
Company at a price to the purchaser (before deduction of underwriter discounts,
commissions and the like) of not less than $11.00 per share; provided that such
sale occurs on or after September 25, 1998 and on or before December 15, 1998.
1.4 RULE 144A INFORMATION. The Company agrees to provide each
---------------------
Investor, upon request, with such written information as may be required in
order to permit such Investor to resell any shares of Series A Stock, Series B
Stock, Series C Stock, Series D Stock or Conversion Stock pursuant to Rule 144A
promulgated under the Securities Act.
1.5 NON-LIMITATION. The provisions of this Section 1 shall not be in
--------------
limitation of any rights which an Investor may have with respect to the books of
account and records of the Company and its subsidiaries (if any) or to inspect
their properties and assets or discuss their affairs, finances and accounts,
under the laws of the respective jurisdictions in which the Company and its
subsidiaries (if any) are incorporated.
2. REGISTRATION RIGHTS.
-------------------
2.1 DEFINITIONS. For purposes of this Section 2:
-----------
(a) Registration. The terms "register," "registered," and
------------ -------- ----------
"registration" refer to a registration effected by preparing and filing a
- -------------
registration statement in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such registration statement.
(b) Registrable Securities. The term "Registrable Securities"
---------------------- ----------------------
means: (1) all the shares of Common Stock of the Company issued or issuable upon
the conversion of any shares of Series A Stock issued under the Series A
Agreement that are now owned or may hereafter be acquired by any Investor or any
Investor's permitted successors and assigns; (2) all the shares of Common Stock
of the Company issued or issuable upon the conversion of any shares of Series B
Stock issued under the Series B Agreement that are now owned or may hereafter be
acquired by any Investor or any Investor's permitted successors and assigns; (3)
all the shares of Common Stock of the Company issued or issuable upon the
conversion of any shares of Series C Stock issued under the Series C Agreement
that are now owned or may hereafter be acquired by any Investor or any
Investor's permitted successors and assigns; (4) all the shares of Common Stock
of the Company issued or issuable upon the conversion of any shares of Series D
Stock issued under the Series D Agreement that are now owned or may hereafter be
acquired by any Investor or any Investor's permitted successors or assigns; (5)
the shares of Common Stock now held by the Stockholders and set forth in
Exhibit B attached hereto
4
<PAGE>
(the "Stockholders' Shares"); (6) up to 33,603 shares of the Company's Common
--------------------
Stock that may be issued to Aberlyn (the "Aberlyn Shares") pursuant to that
--------------
certain warrant dated as of December 5, 1994 (the "Aberlyn Warrant"); (7) up to
---------------
10,000 shares of the Company's Common Stock that may be issued to Prospektiva
(the "Prospektiva Shares") pursuant to that certain Consulting Warrant Agreement
------------------
dated August 12, 1996 (the "Prospektiva Warrant"); and (8) any shares of Common
-------------------
Stock of the Company issued as (or issuable upon the conversion or exercise of
any warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, all such
shares of Common Stock described in clause (1), (2), (3), (4), (5), (6) or (7)
of this subsection (b); excluding in all cases, however, any Registrable
---------
Securities sold by a person in a transaction in which rights under this Section
2 are not assigned in accordance with this Agreement or any Registrable
Securities sold to the public or sold pursuant to Rule 144 promulgated under the
Securities Act; provided, however, that notwithstanding anything herein to the
-------- -------
contrary, the Stockholders' Shares and any shares of Common Stock described in
clause (8) of this Section 2(b) that are issued in respect of any Stockholders'
Shares (which with the Stockholders' Shares are collectively hereinafter
referred to as the "Excluded Shares"), shall not be Registrable Securities for
---------------
purposes of Sections 2.2 or 2.4 of this Agreement; and provided, further, that
-------- -------
notwithstanding anything herein to the contrary, the Aberlyn Shares and the
Prospektiva Shares (collectively, the "Warrant Shares") and any shares of Common
--------------
Stock described in clause (8) of this Section 2(b) that are issued in respect of
any Warrant Shares (which with the Warrant Shares are collectively hereinafter
referred to as the "Excluded Warrant Shares"), shall not be Registrable
-----------------------
Securities for purposes of Sections 2.2, 2.4 and 3 of this Agreement.
(c) Registrable Securities Then Outstanding. The number of shares of
---------------------------------------
"Registrable Securities then outstanding" shall mean the number of shares of
---------------------------------------
Common Stock which are Registrable Securities and (1) are then issued and
outstanding or (2) are then issuable pursuant to the exercise or conversion of
then outstanding and then exercisable options, warrants or convertible
securities.
(d) Holder. For purposes of this Section 2 and Section 3 hereof, the
------
term "Holder" means any person owning of record Registrable Securities that have
------
not been sold to the public or pursuant to Rule 144 promulgated under the
Securities Act or any assignee of record of such Registrable Securities to whom
rights under this Section 2 have been duly assigned in accordance with this
Agreement; provided, however, that for purposes of this Agreement, a record
-------- -------
holder of shares of Series A Stock and/or Series B Stock and/or Series C Stock
and/or Series D Stock convertible into such Registrable Securities shall be
deemed to be the Holder of such Registrable Securities; provided, further, that
-------- -------
(i) a holder of Excluded Shares (as defined in Section 2.1(b)) shall not be a
Holder with respect to such Excluded Shares for purposes of Sections 2.2 or 2.4
of this Agreement; (ii) a holder of Excluded Warrant Shares (as defined in
Section 2.1(b)) shall not be a Holder with respect to such Excluded Warrant
Shares for purposes of Sections 2.2, 2.4 and 3 of this Agreement; (iii) the
Company shall in no event be obligated to register shares of Series A Stock
and/or Series B Stock and/or Series C Stock and/or Series D Stock; and (iv)
Holders of Registrable Securities will not be required to convert their shares
of Series A Stock and/or Series B Stock and/or Series C Stock and/or Series D
Stock into
5
<PAGE>
Common Stock in order to exercise the registration rights granted hereunder
until immediately before the closing of the offering to which the registration
relates.
(e) Form S-3. The term "Form S-3" means such form under the
-------- --------
Securities Act as is in effect on the date hereof or any successor registration
form under the Securities Act subsequently adopted by the SEC which permits
inclusion or incorporation of substantial information by reference to other
documents filed by the Company with the SEC.
(f) SEC. The term "SEC" or "Commission" means the U.S. Securities
--- --- ----------
and Exchange Commission.
2.2 DEMAND REGISTRATION.
-------------------
(a) Request by Holders. If the Company shall receive at any
------------------
time after the earlier of (i) August 31, 1997, or (ii) six (6) months after the
effective date of the Company's initial public offering of its securities
pursuant to a registration filed under the Securities Act, a written request
from the Holders of at least forty percent (40%) of the Registrable Securities
then outstanding that the Company file a registration statement under the
Securities Act covering the registration of Registrable Securities pursuant to
this Section 2.2, then the Company shall, within ten (10) business days of the
receipt of such written request, give written notice of such request ("Request
-------
Notice") to all Holders, and effect, as soon as practicable, the registration
- ------
under the Securities Act of all Registrable Securities which Holders request to
be registered and included in such registration by written notice given by such
Holders to the Company within thirty (30) days after receipt of the Request
Notice, subject only to the limitations of this Section 2.2; provided that the
--------
Registrable Securities requested by all Holders to be registered pursuant to
such request must either (i) be at least thirty percent (30%) of all Registrable
Securities then outstanding or (ii) have an anticipated aggregate public
offering price (before any underwriting discounts and commissions) of not less
than $3,000,000.
(b) Underwriting. If the Holders initiating the registration
------------
request under this Section 2.2 ("Initiating Holders") intend to distribute the
------------------
Registrable Securities covered by their request by means of an underwriting,
then they shall so advise the Company as a part of their request made pursuant
to this Section 2.2 and the Company shall include such information in the
written notice referred to in subsection 2.2(a). In such event, the right of
any Holder to include such Holder's Registrable Securities in such registration
shall be conditioned upon such Holder's participation in such underwriting and
the inclusion of such Holder's Registrable Securities in the underwriting
(unless otherwise mutually agreed by a majority in interest of the Initiating
Holders and such Holder) to the extent provided herein. All Holders proposing
to distribute their securities through such underwriting shall enter into an
underwriting agreement in customary form with the managing underwriter or
underwriters selected for such underwriting by the Company. Notwithstanding any
other provision of this Section 2.2, if the underwriter(s) advise(s) the Company
in writing that marketing factors require a limitation of the number of
securities to be underwritten then the Company shall so advise all Holders of
Registrable Securities which would otherwise be registered and underwritten
pursuant hereto, and the number of
6
<PAGE>
Registrable Securities that may be included in the underwriting shall be reduced
as required by the underwriter(s) and allocated among the Holders of Registrable
Securities on a pro rata basis according to the number of Registrable Securities
then outstanding held by each Holder requesting registration (including the
Initiating Holders); provided, however, that the number of shares of Registrable
-------- -------
Securities to be included in such underwriting and registration shall not be
reduced unless all other securities of the Company are first entirely excluded
from the underwriting and registration. Any Registrable Securities excluded and
withdrawn from such underwriting shall be withdrawn from the registration.
(c) Maximum Number of Demand Registrations. The Company is
--------------------------------------
obligated to effect only two (2) such registrations pursuant to this Section
2.2.
(d) Deferral. Notwithstanding the foregoing, if the Company
--------
shall furnish to Holders requesting the filing of a registration statement
pursuant to this Section 2.2, a certificate signed by the President or Chief
Executive Officer of the Company stating that, in the good faith judgment of the
Board of Directors of the Company, it would be seriously detrimental to the
Company and its stockholders for such registration statement to be filed and it
is therefore essential to defer the filing of such registration statement, then
the Company shall have the right to defer such filing for a period of not more
than 120 days after receipt of the request of the Initiating Holders; provided,
--------
however, that the Company may not utilize this right more than once in any
- -------
twelve (12) month period.
(e) Expenses. All expenses incurred in connection with a
--------
registration pursuant to this Section 2.2, including without limitation all
registration and qualification fees, printers' and accounting fees, fees and
disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel for the selling Holders (but excluding
underwriters' discounts and commissions), shall be borne by the Company. Each
Holder participating in a registration pursuant to this Section 2.2 shall bear
such Holder's proportionate share (based on the total number of shares sold in
such registration other than for the account of the Company) of all discounts,
commissions or other amounts payable to underwriters or brokers in connection
with such offering. Notwithstanding the foregoing, the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to this Section 2.2 if the registration request is subsequently withdrawn at the
request of the Holders of a majority of the Registrable Securities to be
registered, unless the Holders of a majority of the Registrable Securities then
outstanding agree to forfeit their right to one (1) demand registration pursuant
to this Section 2.2 (in which case such righ t shall be forfeited by all Holders
of Registrable Securities); provided, further, however, that if at the time of
--------- ------- -------
such withdrawal, the Holders have learned of a material adverse change in the
condition, business, or prospects of the Company not known to the Holders at the
time of their request for such registration and have withdrawn their request for
registration with reasonable promptness after learning of such material adverse
change, then the Holders shall not be required to pay any of such expenses and
shall retain their rights pursuant to this Section 2.2.
2.3 PIGGYBACK REGISTRATIONS. The Company shall notify all Holders of
-----------------------
Registrable Securities in writing at least thirty (30) days prior to filing any
registration statement under the Securities Act for purposes of effecting a
public offering of securities
7
<PAGE>
of the Company (including, but not limited to, registration statements relating
to secondary offerings of securities of the Company, but excluding registration
---------
statements relating to any registration under Section 2.2 or Section 2.4 of this
Agreement or to any employee benefit plan or a corporate reorganization;
provided, however, that notwithstanding the foregoing, the registration rights
- -------- -------
provided in this Section 2.3 to the Warrant Holders shall apply to registrations
under Section 2.4 of this Agreement) and will afford each such Holder an
opportunity to include in such registration statement all or any part of the
Registrable Securities then held by such Holder. Each Holder desiring to include
in any such registration statement all or any part of the Registrable Securities
held by such Holder shall, within thirty (30) days after receipt of the above-
described notice from the Company, so notify the Company in writing, and in such
notice shall inform the Company of the number of Registrable Securities such
Holder wishes to include in such registration statement. If a Holder decides not
to include all of such Holder's Registrable Securities in any registration
statement thereafter filed by the Company, such Holder shall nevertheless
continue to have the right to include any Registrable Securities in any
subsequent registration statement or registration statements as may be filed by
the Company with respect to offerings of its securities, all upon the terms and
conditions set forth herein.
(a) Underwriting. If a registration statement under which the
------------
Company gives notice under this Section 2.3 is for an underwritten offering,
then the Company shall so advise the Holders of Registrable Securities. In such
event, the right of any such Holder's Registrable Securities to be included in a
registration pursuant to this Section 2.3 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their Registrable Securities through such
underwriting shall enter into an underwriting agreement in customary form with
the managing underwriter or underwriter(s) selected for such underwriting.
Notwithstanding any other provision of this Agreement, if the managing
underwriter(s) determine(s) in good faith that marketing factors require a
limitation of the number of shares to be underwritten, then the managing
underwriter(s) may exclude shares (including Registrable Securities) from the
registration and the underwriting, and the number of shares that may be included
in the registration and the underwriting shall be allocated, first, to the
-----
Company, and second, to each of the Holders requesting inclusion of their
------
Registrable Securities in such registration statement on a pro rata basis based
on the total number of Registrable Securities then held by each such Holder;
provided, however, that the right of the underwriters to exclude shares
- -------- -------
(including Registrable Securities) from the registration and underwriting as
described above shall be restricted so that the number of Registrable Securities
included in any such registration is not reduced below twenty percent (20%) of
the shares included in the registration, except for a registration relating to
the Company's initial public offering, from which all Registrable Securities may
be excluded. If any Holder disapproves of the terms of any such underwriting,
such Holder may elect to withdraw therefrom by written notice to the Company and
the underwriter, delivered at least ten (10) business days prior to the
effective date of the registration statement. Any Registrable Securities
excluded or withdrawn from such underwriting shall be excluded and withdrawn
from the registration. For any Holder which is a partnership or corporation,
the partners, retired partners and shareholders of such Holder, or the estates
and family members of any such partners and retired partners and any trusts for
the benefit of any of
8
<PAGE>
of the foregoing persons shall be deemed to be a single "Holder", and any pro
rata reduction with respect to such "Holder" shall be based upon the aggregate
amount of shares carrying registration rights owned by all entities and
individuals included in such "Holder", as defined in this sentence.
(b) Expenses. All expenses incurred in connection with a
--------
registration pursuant to this Section 2.3 (excluding underwriters' and brokers'
discounts and commissions), including, without limitation all federal and "blue
sky" registration and qualification fees, printers' and accounting fees, fees
and disbursements of counsel for the Company and reasonable fees and
disbursements of one (1) counsel for the selling Holders, shall be borne by the
Company.
2.4 FORM S-3 REGISTRATION. In case the Company shall receive from any
---------------------
Holder or Holders of at least (i) twenty percent (20%) of all Registrable
Securities or (ii) a majority of the Registrable Securities that are issued or
issuable upon conversion of the Series D Stock, a written request or requests
that the Company effect a registration on Form S-3 and any related qualification
or compliance with respect to all or a part of the Registrable Securities owned
by such Holder or Holders, then the Company will:
(a) Notice. Promptly give written notice of the proposed
------
registration and the Holder's or Holders' request therefor, and any related
qualification or compliance, to all other Holders of Registrable Securities; and
(b) Registration. As soon as practicable, effect such
------------
registration and all such qualifications and compliances as may be so requested
and as would permit or facilitate the sale and distribution of all or such
portion of such Holder's or Holders' Registrable Securities as are specified in
such request, together with all or such portion of the Registrable Securities of
any other Holder or Holders joining in such request as are specified in a
written request given within thirty (30) days after receipt of such written
notice from the Company; provided, however, that the Company shall not be
-------- -------
obligated to effect any such registration, qualification or compliance pursuant
to t his Section 2.4:
(1) if Form S-3 is not available for such offering by the
Holders;
(2) if the Holders, together with the holders of any other
securities of the Company entitled to inclusion in such registration, propose to
sell Registrable Securities and such other securities (if any) at an aggregate
price to the public of less than $500,000;
(3) if the Company shall furnish to the Holders a
certificate signed by the President or Chief Executive Officer of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its stockholders
for such Form S-3 Registration to be effected at such time, in which event the
Company shall have the right to defer the filing of the Form S-3 registration
statement no more than once during any twelve (12) month period for a period
9
<PAGE>
of not more than 120 days after receipt of the request of the Holder or Holders
under this Section 2.4;
(4) if the Company has, within the twelve (12) month period
preceding the date of such request, already effected one (1) registration on
Form S-3 for the Holders pursuant to this Section 2.4; or
(5) in any particular jurisdiction in which the Company
would be required to qualify to do business or to execute a general consent to
service of process in effecting such registration, qualification or compliance.
(6) if such registration is initiated pursuant to clause
(ii) of the first paragraph of this Section 2.4 and the Company has already
effected one (1) registration that was initiated pursuant to such clause.
(c) Expenses. Subject to the foregoing, the Company shall file
--------
a Form S-3 registration statement covering the Registrable Securities and other
securities so requested to be registered pursuant to this Section 2.4 as soon as
practicable after receipt of the request or requests of the Holders for such
registration. The Company shall pay all expenses incurred in connection with the
first registration requested pursuant to this Section 2.4, (excluding
underwriters' or brokers' discounts and commissions), including without
limitation all filing, registration and qualification, printers' and accounting
fees and the reasonable fees and disbursements of one (1) counsel for the
selling Holder or Holders and counsel for the Company; provided, however that if
-------- -------
such registration is initiated pursuant to clause (i) of the first paragraph of
this Section 2.4, the Company shall also be obligated to pay all expenses as
provided for in this subsection 2.4(c) (excluding underwriters' or brokers
discounts and commissions) in connection with the first registration initiated
pursuant to clause (ii) of the first paragraph of this Section 2.4. All
expenses incurred in connection with any subsequent registration requested
pursuant to this Section 2.4 shall be borne by the Holders who participate in
such registration on a pro rata basis according to the number of Registrable
Securities owned by the Holders that are included in such registration at the
time it goes effective.
(d) Not Demand Registration. Form S-3 registrations shall not
-----------------------
be deemed to be demand registrations as described in Section 2.2 above.
2.5 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
--------------------------
registration of any Registrable Securities under this Agreement, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for up to ninety (90) days.
10
<PAGE>
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by them that are included in such registration.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(g) Furnish, at the request of any Holder requesting
registration of Registrable Securities, on the date that such Registrable
Securities are delivered to the underwriters for sale, if such securities are
being sold through underwriters, or, if such securities are not being sold
through underwriters, on the date that the registration statement with respect
to such securities becomes effective, (i) an opinion, dated as of such date, of
the counsel representing the Company for the purposes of such registration, in
form and substance as is customarily given to underwriters in an underwritten
public offering and reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities and (ii) a
"comfort" letter dated as of such date, from the independent certified public
accountants of the Company, in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering and reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities.
11
<PAGE>
2.6 FURNISH INFORMATION. Each selling Holder shall furnish to the
-------------------
Company such information regarding itself, the Registrable Securities held by
it, and the intended method of disposition of such securities as the Company
shall request in writing and as shall be required to timely effect the
registration of such selling Holder's Registrable Securities.
2.7 DELAY OF REGISTRATION. No Holder shall have any right to obtain
---------------------
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 2.
2.8 INDEMNIFICATION. In the event any Registrable Securities are
---------------
included in a registration statement under Sections 2.2, 2.3 or 2.4:
(a) By the Company. To the extent permitted by law, the Company
--------------
will indemnify and hold harmless each Holder, the partners, officers and
directors of each Holder, any underwriter (as defined in the Securities Act) for
such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Securities Act or the Securities Exchange Act of 1934,
as amended (the "1934 Act"), ag ainst any losses, claims, damages or liabilities
--------
(joint or several) to which they may become subject under the Securities Act,
the l934 Act or other federal or state law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any of the following statements, omissions or violations (collectively a
"Violation"):
---------
(i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein
or any amendments or supplements thereto;
(ii) 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 violation or alleged violation by the Company of
the Securities Act, the 1934 Act, any federal or state securities
law or any rule or regulation promulgated under the Securities
Act, the 1934 Act or any federal or state securities law in
connection with the offering covered by such registration
statement;
and the Company will reimburse each such Holder, partner, officer, director,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them, as incurred, in connection with investigating or defending any
such loss, claim, damage, liability or action; provided however, that the
-------- -------
indemnity agreement contained in this subsection 2.8(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in any such
case for
12
<PAGE>
any such loss, claim, damage, liability or action to the extent that it arises
out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by such Holder, partner, officer, director, underwriter
or controlling person of such Holder.
(b) By Selling Holders. To the extent permitted by law, each
------------------
selling Holder will indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed the registration statement, each
person, if any, who controls the Company within the meaning of the Securities
Act, any underwriter and any other Holder selling securities under such
registration statement or any of such other Holder's partners, directors or
officers or any person who controls such Holder within the meaning of the
Securities Act or the 1934 Act, against any losses, claims, damages or
liabilities (joint or several) to which the Company or any such director,
officer, controlling person, underwriter or other such Holder, or partner,
director, officer or controlling person of such other Holder may become subject
under the Securities Act, the 1934 Act or other federal or state law, insofar as
such losses, claims, damages or liabilities (or actions in respect thereto)
arise out of or are based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by such Holder expressly for use
in connection with such registration; and each such Holder will reimburse any
legal or other expenses reasonably incurred by the Company or any such director,
officer, controlling person, underwriter or other Holder, or partner, officer,
director or controlling person of such other Holder in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this subsection
- -------- -------
2.8(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Holder, which consent shall not be unreasonably withheld; and provided
--------
further, that the total amounts payable in indemnity by a Holder under this
- -------
Section 2.8(b) in respect of any Violation shall not exceed the net proceeds
received by such Holder in the registered offering out of which such Violation
arises.
(c) Notice. Promptly after receipt by an indemnified party under this
------
Section 2.8 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 2.8, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifyin g party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
-------- -------
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential conflict of interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 2.8, but the omission so to deliver written
notice to the indemnifying party will not
13
<PAGE>
relieve it of any liability that it may have to any indemnified party otherwise
than under this Section 2.8.
(d) Defect Eliminated in Final Prospectus. The foregoing
--------------------------------------
indemnity agreements of the Company and Holders are subject to the condition
that, insofar as they relate to any Violation made in a preliminary prospectus
but eliminated or remedied in the amended prospectus on file with the SEC at the
time the registration stateme nt in question becomes effective or the amended
prospectus filed with the SEC pursuant to SEC Rule 424(b) (the "Final
-----
Prospectus), such indemnity agreement shall not inure to the benefit of any
- ----------
person if a copy of the Final Prospectus was furnished to the indemnified party
and was not furnished to the person asserting the loss, liability, claim or
damage at or prior to the time such action is required by the Securities Act.
(e) Contribution. In order to provide for just and equitable
------------
contribution to joint liability under the Securities Act in any case in which
either (i) any Holder exercising rights under this Agreement, or any controlling
person of any such Holder, makes a claim for indemnification pursuant to this
Section 2.8 but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 2.8 provides
for indemnification in such case, or (ii) contribution under the Securities Act
may be required on the part of any such selling Holder or any such controlling
person in circumstances for which indemnification is provided under this Section
2.8; then, and in each such case, the Company and such Holder will contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion so that such Holder
is responsible for the portion represented by the percentage that the public
offering price of such Holder's Registrable Securities offered by and sold under
the registration statement bears to the public offering price of all securities
offered by and sold under such registration statement, and the Company and other
selling Holders are responsible for the remaining portion; provided, however,
-------- -------
that, in any such case, (A) no such Holder will be required to contribute any
amount in excess of the public offering price of all such Registrable Securities
offered and sold by such Holder pursuant to such registration statement; and (B)
no person or entity guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) will be entitled to contribution from
any person or entity who was not guilty of such fraudulent misrepresentation.
(f) Survival. The obligations of the Company and Holders under
--------
this Section 2.8 shall survive the completion of any offering of Registrable
Securities in a registration statement, and otherwise.
2.9 "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees that such
---------------------------
Holder shall not, to the extent requested by the Company or an underwriter of
securities of the Company, sell or otherwise transfer or dispose of any
Registrable Securities or other shares of stock of the Company then beneficially
owned by such Holder (other than to donees or partners of the Holder who agree
to be similarly bound) for up to
14
<PAGE>
one hundred eighty (180) days following the effective date of a registration
statement of the Company filed under the Securities Act; provided, however,
-------- -------
that:
(a) such agreement shall be applicable only to (i) a
registration statement relating to a sale by the Company, on or after September
25, 1998 and on or before December 15, 1998, of not less than 1.2 million shares
of the Company's Common Stock for the account of the Company at a price to the
purchase (before deduction of underwriters discounts, commissions and the like)
of not less than $11.00 per share, and (ii) the first registration statement of
the Company which covers securities to be sold on its behalf to the public in an
underwritten offering in which shres are listed on the Swiss Exchange, New York
Stock Exchange, American Stock Exchange or Nasdaq National Market, but not to
Registrable Securities sold pursuant to any such registration statement; and
(b) all executive officers and directors of the Company then
holding Common Stock of the Company enter into similar agreements.
In order to enforce the foregoing covenant, the Company shall have the right to
place restrictive legends on the certificates representing the shares subject to
this Section and to impose stop transfer instructions with respect to the
Registrable Securities and such other shares of stock of each Holder (and the
shares or securities of every other person subject to the foregoing restriction)
until the end of such period.
2.10 RULE 144 REPORTING. With a view to making available the benefits
------------------
of certain rules and regulations of the Commission which may at any time permit
the sale of the Registrable Securities to the public without registration, after
such time as a public market exists for the Common Stock of the Company, the
Company agrees to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
after the effective date of the first registration under the Securities Act
filed by the Company for an offering of its securities to the general public;
(b) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the 1934 Act (at any time after it has become subject to such
reporting requirements); and
(c) So long as a Holder owns any Registrable Securities, to
furnish to the Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of said Rule 144 (at any
time after 90 days after the effective date of the first registration statement
filed by the Company for an offering of its securities to the general public),
and of the Securities Act and the 1934 Act (at any time after it has become
subject to the reporting requirements of the 1934 Act), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents of the Company as a Holder may reasonably request in availing itself
of any rule or regulation of the Commission allowing a Holder to sell any such
securities without registration (at any time after the Company has become
subject to the reporting requirements of the 1934 Act).
2.11 TERMINATION OF THE COMPANY'S OBLIGATIONS. The Company shall have
----------------------------------------
no obligations pursuant to Sections 2.2 through 2.4 with respect to: (i) any
request or requests for registration made by any Holder on a date more than ten
(10) years after the
15
<PAGE>
closing date of the Company's initial public offering; or (ii) any Registrable
Securities proposed to be sold by a Holder in a registration pursuant to Section
2.2, 2.3 or 2.4 if, in the opinion of counsel to the Company, all such
Registrable Securities proposed to be sold by a Holder may be sold in a three-
month period without registration under the Securities Act pursuant to Rule 144
under the Securities Act.
2.12 LIMITATION ON SUBSEQUENT REGISTRATION RIGHTS. From and after the
--------------------------------------------
date of this Agreement, the Company shall not, without the prior written consent
of the Holders of a majority of the Registrable Securities then outstanding,
enter into any agreement with any holder or prospective holder of any securities
of the Company relating to registration rights unless such agreement includes:
(a) to the extent the agreement would allow such holder or prospective holder to
include such securities in any registration filed under Section 2.2, 2.3 or 2.4
hereof, a provision that such holder or prospective holder may include such
securities in any such registration only to the extent that the inclusion of its
securities will not reduce the amount of the Registrable Securities of the
Holders which would otherwise be included; (b) to the extent the agreement would
allow such holder or prospective holder to include such securities in any
registration effected pursuant to Section 2.2, 2.3 or 2.4 hereof, a provision
that the rights of such holder to participate in such registration shall permit
participation on no greater level than that of the Holders; and (c) no provision
which would allow such holder or prospective holder to make a demand
registration which could result in such registration statement being declared
effective prior to the earlier of the dates set forth in Section 2.2(a).
3. RIGHT OF FIRST REFUSAL.
----------------------
3.1 GENERAL. Each Holder (as defined in Section 2.1(d)) and any party
-------
to whom such Holder's rights under this Section 3 have been duly assigned in
accordance with Section 4.1(b) (each such Holder or assignee being hereinafter
referred to as a "Rights Holder") has the right of first refusal to purchase
-------------
such Rights Holder's Pro Rata Share (as defined below), of all (or any part) of
any "New Securities" (as defined in Section 3.2) that the Company may from time
to time issue after the date of this Agreement. A Rights Holder's "Pro Rata
--------
Share" for purposes of this right of first refusal is the ratio of (a) the
- -----
number of Registrable Securities as to which such Rights Holder is the Holder
(and/or is deemed to be the Holder under Section 2.1(d)), to (b) a number of
shares of Common Stock of the Company equal to the sum of (i) the total number
of shares of Common Stock of the Company then outstanding plus (ii) the total
number of shares of Common Stock of the Company into which all then outstanding
shares of Preferred Stock of the Company are then convertible plus (iii) the
number of shares of Common Stock of the Company reserved for issuance under
stock purchase and stock option plans of the Company and outstanding warrants.
3.2 NEW SECURITIES. "New Securities" shall mean any Common Stock or
-------------- --------------
Preferred Stock of the Company, whether now authorized or not, and rights,
options or warrants to purchase such Common Stock or Preferred Stock, and
securities of any type whatsoever that are, or may become, convertible or
exchangeable into such Common Stock or Preferred Stock; provided, however, that
-------- -------
the term "New Securities" does not include:
---- --- -------
16
<PAGE>
(a) any shares of the Company's Common Stock (and/or options or
warrants therefor) issued to employees, officers, directors, contractors,
advisors or consultants of the Company pursuant to incentive agreements or plans
approved by the Board of Directors of the Company;
(b) any shares of Series A Stock issued under the Series A
Agreement as such agreement may be amended;
(c) any shares of Series B Stock issued under the Series B
Agreement as such agreement may be amended, including, without limitation, any
shares of Series B Stock issued to Other Investors pursuant to Section 2.2 of
the Series B Agreement;
(d) any shares of Series C Stock issued under the Series C
Agreement as such agreement may be amended, including, without limitation, any
shares of Series C Stock issued to Other Investors pursuant to Section 2.2 of
the Series C Agreement;
(e) any shares of Series D Stock issued under the Series D
Agreement as such agreement may be amended, including, without limitation, any
shares of Series D Stock issued to Other Investors pursuant to Section 2.2 of
the Series D Agreement;
(f) any securities issuable upon conversion of any shares of
Series A Stock, Series B Stock, Series C Stock or Series D Stock;
(g) any securities issuable upon exercise of any options,
warrants or rights to purchase any securities of the Company outstanding on the
date of this Agreement ("Warrant Securities") and any securities issuable upon
-------------------
the conversion of any Warrant Securities;
(h) any securities issuable upon exercise or conversion of any
New Securities;
(i) shares of the Company's Common Stock or Preferred Stock
issued in connection with any stock split or stock dividend;
(j) securities offered by the Company to the public pursuant to
a registration statement filed under the Securities Act;
(k) any shares of the Company's Common Stock or Preferred Stock
(and/or options or warrants therefor) issued or issuable to parties providing
the Company with equipment leases, real property leases, loans, credit lines,
guaranties of indebtedness, cash price reductions or similar financing; or
17
<PAGE>
(l) securities issued pursuant to the acquisition of another
corporation or entity by the Company by consolidation, merger, purchase of all
or substantially all of the assets, or other reorganization in which the Company
acquires, in a single transaction or series of related transactions, all or
substantially all of the assets of such other corporation or entity or fifty
percent (50%) or more of the voting power of such other corporation or entity or
fifty percent (50%) or more of the equity ownership of such other entity.
3.3 PROCEDURES. In the event that the Company proposes to undertake
----------
an issuance of New Securities, it shall give to each Rights Holder written
notice of its intention to issue New Securities (the "Notice"), describing the
------
type of New Securities and the price and the general terms upon which the
Company proposes to issue such New Securities. Each Rights Holder shall have
twenty (20) days from the date on which any such Notice was given to agree in
writing to purchase such Rights Holder's Pro Rata Share of such New Securities
for the price and upon the general terms specified in the Notice by giving
written notice to the Company and stating therein the quantity of New Securities
to be purchased (not to exceed such Rights Holder's Pro Rata Share). If any
Rights Holder fails to so agree in writing within such twenty (20) day period to
purchase such Rights Holder's full Pro Rata Share of an offering of New
Securities (a "Nonpurchasing Holder"), then such Nonpurchasing Holder shall
--------------------
forfeit the right hereunder to purchase that part of such Nonpurchasing Holder's
Pro Rata Share of such New Securities that such Nonpurchasing Holder did not so
agree to purchase; and the Company shall promptly give each Rights Holder who
has timely agreed to purchase such Rights Holder's full Pro Rata Share of such
offering of New Securities (a "Purchasing Holder") written notice of the failure
-----------------
of any Nonpurchasing Holder to purchase such Nonpurchasing Holder's full Pro
Rata Share of such offering of New Securities (the "Overallotment Notice").
--------------------
Each Purchasing Holder shall have a right of overallotment such that such
Purchasing Holder may agree to purchase a portion of the Nonpurchasing Holders'
unpurchased Pro Rata Shares of such offering on a pro rata basis according to
the relative Pro Rata Shares of the Purchasing Holders, at any time within five
(5) days after receiving the Overallotment Notice.
3.4 FAILURE TO EXERCISE. In the event that the Rights Holders fail to
-------------------
exercise in full the right of first refusal within such twenty (20) plus five
(5) day period, then the Company shall have ninety (90) days thereafter to sell
the New Securities with respect to which the Rights Holders' rights of first
refusal hereunder were not exercised, at a price and upon general terms not
materially more favorable to the purchasers thereof than specified in the
Company's Notice to the Rights Holders. In the event that the Company has not
issued and sold the New Securities within such ninety (90) day period, then the
Company shall not thereafter issue or sell any New Securities without again
first offering such New Securities to the Rights Holders pursuant to this
Section 3.
3.5 TERMINATION. This right of first refusal shall terminate (a)
-----------
immediately before the closing of the first underwritten sale of Common Stock of
the Company to the public pursuant to a registration statement filed with, and
declared effective by, the SEC under the Securities Act, covering the offer and
sale of Common Stock to the public for an aggregate gross public offering price
(calculated before deduction of underwriters' discounts and commissions) of at
least $10.0 million and a public offering price per share which equals or
exceeds $4.125 per share (such price per
18
<PAGE>
share of Common Stock to be appropriately adjusted to reflect stock dividends,
splits, combinations and the like), or (b) upon an acquisition of the Company by
another corporation or entity by consolidation, merger or other reorganization
in which the holders of the Company's outstanding voting stock immediately prior
to such transaction own, immediately after such transaction, securities
representing less than fifty percent (50%) or more of the voting power of the
corporation or other entity surviving such transaction. This right of first
refusal shall also terminate immediately prior to the closing of the sale of not
less than 1.2 million shares of the Company's Common Stock for the account of
the Company at a price to the purchaser (before deduction of underwriter
discounts, commissions and the like) of not less than $11.00 per share; provided
that such sale occurs on or after September 25, 1998 and on or before December
15, 1998.
4. ASSIGNMENT AND AMENDMENT.
------------------------
4.1 ASSIGNMENT. Notwithstanding anything herein to the contrary:
----------
(a) Information Rights. The rights of an Investor under Section
------------------
1.1 or 1.2 or 1.4 hereof may be assigned only to a party who acquires from an
Investor (or an Investor's permitted assigns) at least that number of shares of
Series ABCD Based Stock as is described in Section 1.1 or 1.2 or 1.4 hereof,
respectively.
(b) Registration Rights; Refusal Rights. The registration rights of
-----------------------------------
a Holder under Section 2 hereof and the rights of first refusal of a Rights
Holder under Section 3 hereof, as applicable, may be assigned only: (i) to a
party who acquires at least forty thousand (40,000) shares of Series A Stock
issued under the Series A Agreement and/or Series B Stock issued under the
Series B Agreement and/or Series C Stock issued under the Series C Agreement
and/or Series D Stock issued under the Series D Agreement and/or an equivalent
number (on an as-converted basis) of Registrable Securities issued upon
conversion thereof and/or Stockholders' Shares or some combination thereof (as
appropriately adjusted for stock dividends, splits, combinations and the like);
(ii) to a party who acquires at least five thousand (5,000) Warrant Shares (as
appropriately adjusted for stock dividends, splits, combinations and the like);
(iii) to a successor entity to an Investor pursuant to a reorganization or
recapitalization of an Investor; (iv) to an affiliate of an Investor; (v) with
respect to the Warrant Shares, to an affiliate of a Warrant Holder; (vi) to the
partners or shareholders of an Investor; or (vii) with respect to rights of
first refusal under Section 3 hereof, in all or part by Commonwealth BioVentures
IV Limited Partnership or Commonwealth BioVentures V Limited Partnership or any
affiliates thereof who are Rights Holders to Concord Partners II, L.P. or any
affiliates thereof; provided that such holder as described in Clauses (iii),
-------- ----
(iv) or (vi) hereof owns at least ten thousand (10,000) shares of Series ABCD
Based Stock and/or Registrable Securities or some combination thereof (as
appropriately adjusted for stock dividends, splits, combinations and the like);
provided, however that no party may be assigned any of the foregoing rights
- --------- -------
unless the Company is given written notice by the assigning party at the time of
such assignment stating the name and address of the assignee and identifying the
securities of the Company as to which the rights in question are being assigned;
and provided further that any such assignee shall receive such assigned rights
-------- -------
subject to all the terms and conditions of this Agreement, including without
limitation the provisions of this Section 4.
4.2 AMENDMENT OF RIGHTS. Any provision of this Agreement may be
-------------------
amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and Investors (and/or any of their permitted
successors or assigns) holding shares
19
<PAGE>
of Series A Stock and/or Series B Stock and/or Series C Stock and/or Series D
Stock and/or Conversion Stock representing and/or convertible into sixty percent
(60%) of all the Investors' Shares (as defined below); provided, however, any
-------- -------
such amendment or waiver shall be equally applicable to all Investors; provided,
--------
further, that it is acknowledged that the effect or implication of an amendment
- -------
or waiver may be different for different Investors. Notwithstanding the
foregoing, (i) the piggyback registration rights granted to the Stockholders and
Warrant Holders under Section 2 of this Agreement may not be eliminated or
materially and adversely changed without the written consent of persons holding
a majority of the Stockholders' Shares and Warrant Shares, voting as one group;
provided, however, that the grant to third parties of piggyback registration
- -------- -------
rights under Section 2.3 hereof on a pari passu basis with the piggyback
registration rights of the Stockholders' Shares and Warrant Shares under Section
2.3 shall not be deemed to be a material and adverse change to the piggyback
registration rights of the Stockholders and Warrant Holders under this
Agreement; and (ii) the Form S-3 registration right granted to the holders of
Registrable Securities issued or issuable upon conversion of the Series D Stock,
pursuant to clause (ii) of the first paragraph of Section 2.4 herein, may not be
eliminated or materially and adversely changed without the written consent of
persons holding a majority of the Registrable Securities issued or issuable upon
conversion of the Series D Stock. As used herein, the term "Investors' Shares"
-----------------
shall mean, collectively, (a) the shares of Common Stock then issuable upon
conversion of (i) all then outstanding shares of Series A Stock issued under the
Series A Agreement, (ii) all then outstanding shares of Series B Stock issued
under the Series B Agreement, (iii) all then outstanding shares of Series C
Stock issued under the Series C Agreement and (iv) all then outstanding shares
of Series D Stock issued under the Series D Agreement; and (b) all then
outstanding shares of Conversion Stock that were issued upon the conversion of
any shares of Series A Stock, Series B Stock, Series C Stock or Series D Stock
issued under the Series A Agreement, Series B Agreement, Series C Agreement or
Series D Agreement, respectively. Any amendment or waiver effected in
accordance with this Section 4.2 shall be binding upon each Investor, each
Stockholder, each Holder, each permitted successor or assignee of such Investor
or Holder and the Company.
4.3 OTHER INVESTORS. By signing a counterpart signature page to this
---------------
Agreement, without the need for any further consent, approval or signature of
any party to this Agreement, any party who becomes a party to the Agreement as
an "Other Investor" pursuant to Section 2.2 of the Series D Agreement shall
--------------
become a party to this Agreement, as an Investor hereunder.
4.4 RESTRICTED ACTIVITIES. Without the unanimous written consent of
---------------------
the Company's Board of Directors, or the affirmative vote of a majority plus one
of the members of the Company's Board of Directors present at a meeting duly
called and at which a quorum (which shall not be less than a majority of the
authorized number of directors) is present, neither the Company nor its
subsidiaries (if any) shall, together or alone:
(a) borrow, guarantee or otherwise incur any indebtedness or
commit itself to pay in excess of $250,000 in any transaction or series of
similar transactions;
20
<PAGE>
(b) lease, purchase, sell or otherwise acquire or dispose of any
property or services having a value in excess of $250,000 in any transaction or
series of similar transactions or license, sell or otherwise dispose of any
material United States patents, foreign patents, patent rights, invention
disclosures, know-how, trademarks, trade names, trade name rights, copyrights or
other proprietary information;
(c) assign, mortgage, pledge or otherwise encumber any assets
having a value of more than $250,000 or any material United States patents,
foreign patents, patent rights, invention disclosures, know-how, trademarks,
trade names, trade name rights, copyrights or other proprietary information;
(d) enter into any employment, consulting or similar agreement
obligating the Company to pay in excess of $100,000 per annum which the Company
or its subsidiaries shall be unable to cancel, without penalty or other cost,
upon notice of one month or less, or any collective bargaining agreement;
(e) make any loan, extend any credit or forgive or otherwise
change the terms of any indebtedness, in excess of $250,000;
(f) purchase or otherwise acquire the securities of any other
corporation, partnership or other entity or enter into any partnership, joint
venture or other similar agreement; provided, however, that investments in
-------- -------
short-term U.S. government securities, bank certificates of deposit or other
similar investments shall not be deemed a breach of this covenant;
(g) declare or pay any dividend in cash or in property or make
or authorize any other distribution directly or indirectly on its Common Stock
or any other capital stock now outstanding or hereafter issued other than as
required by the Company's Certificate of Incorporation; or (h) directly or
indirectly purchase, acquire, redeem (except as provided in the Company's
Certificate of Incorporation) or retire any share of its outstanding capital
stock or any securities exercisable for, or convertible into, its capital stock
(except that the Company, if approved by the Board of Directors of the Company,
may purchase shares of capital stock of the Company from employees upon
termination of their employment or upon any proposed sale or other transfer by
any employee of any shares of capital stock owned by such employee).
Notwithstanding the foregoing, the requirements of this Section 4.4 shall not
apply to the following transactions:
(x) merger or consolidation of the Company with or into any
entity;
21
<PAGE>
(y) sale of all or substantially all the Company's assets in a
single transaction or series of related transactions; or
(z) liquidation or dissolution of the Company.
Additionally, the provisions of this Section 4.4 shall terminate
immediately prior to the closing of the sale of not less than 1.2 million
shares of the Company's Common Stock for the account of the Company at a price
to the purchaser (before deduction of underwriter discounts, commissions and
the like) of not less than $11.00 per share; provided that such sale occurs on
or after September 25, 1998 and on or before December 15, 1998.
GENERAL PROVISIONS.
------------------
5.1 NOTICES. Any notice, request or other communication required or
-------
permitted hereunder shall be in writing and shall be deemed to have been duly
given if (i) personally delivered, (ii) for U.S. addresses, deposited in the
U.S. mail by registered or certified mail, return receipt requested, postage
prepaid, (iii) deposited with a nationally or internationally (as applicable)
recognized express courier service, fees prepaid, or (iv) sent by facsimile,
with proof of transmission, as follows:
(a) if to an Investor, at such Investor's address or fax number
as set forth on Exhibit A-1 or A-2 hereto.
(b) if to a Stockholder, at such Stockholder's address or fax
number as set forth on Exhibit B hereto.
(c) if to Aberlyn, at 1000 Winter Street, Suite 1100, Waltham,
MA 02154, Attention: President, fax number: (617) 895-1645.
(d) if to Prospektiva, at Strada Regina 3, 6900 Lugano,
SWITZERLAND, Attention: Erik Danielsen, fax number: 41-91-980-0401.
(e) if to the Company, at 484 Oakmead Parkway, Sunnyvale, CA
94086, Attention: President, fax number: (408) 481-1601; with a copy to Gordon
K. Davidson, Esq., Fenwick & West LLP, Two Palo Alto Square, Palo Alto, CA
94306, fax number: (415) 494-1417.
Any party hereto (and such party's permitted assigns) may by notice so given
change such party's address or fax number for future notices hereunder. Notice
shall conclusively be deemed to have been given when delivered, deposited or
sent in the manner set forth above.
5.2 ENTIRE AGREEMENT. This Agreement, together with all the Exhibits
----------------
hereto, constitutes and contains the entire agreement and understanding of the
parties with respect to the subject matter hereof and supersedes any and all
prior negotiations, correspondence, agreements, understandings, duties or
obligations between the parties respecting the subject matter hereof, including,
without limitation, the Prior Agreement. By becoming a Stockholder under this
Agreement, UKRF acknowledges and agrees that the Right of First Refusal granted
to UKRF under this Agreement supersedes the right of first refusal granted to
UKRF pursuant to Section 4.7(b) of that certain License Agreement, dated as of
July 15, 1992, among the Company, UKRF and Oklahoma Medical Research Foundation.
Nothing herein limits Aberlyn's rights under the Aberlyn Warrant.
22
<PAGE>
5.3 GOVERNING LAW. This Agreement shall be governed by and construed
-------------
exclusively in accordance with the internal laws of the State of California as
applied to agreements among California residents entered into and to be
performed entirely within California, excluding that body of law relating to
conflict of laws and choice of law.
5.4 SEVERABILITY. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, then such provision(s) shall be
excluded from this Agreement and the balance of this Agreement shall be
interpreted as if such provision(s) were so excluded and shall be enforceable in
accordance with its terms.
5.5 THIRD PARTIES. Nothing in this Agreement, express or implied, is
-------------
intended to confer upon any person, other than the parties hereto and their
successors and assigns, any rights or remedies under or by reason of this
Agreement.
5.6 SUCCESSORS AND ASSIGNS. Subject to the provisions of Section
----------------------
4.1, the provisions of this Agreement shall inure to the benefit of, and shall
be binding upon, the successors and permitted assigns of the parties hereto.
5.7 CAPTIONS. The captions to sections of this Agreement have been
--------
inserted for identification and reference purposes only and shall not be used to
construe or interpret this Agreement.
5.8 COUNTERPARTS. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
5.9 COSTS AND ATTORNEYS' FEES. In the event that any action, suit or
-------------------------
other proceeding is instituted concerning or arising out of this Agreement or
any transaction contemplated hereunder, the prevailing party shall recover all
of such party's costs and attorneys' fees incurred in each such action, suit or
other proceeding, including any and all appeals or petitions therefrom.
5.10 ADJUSTMENTS FOR STOCK SPLITS, ETC. Wherever in this Agreement
---------------------------------
there is a reference to a specific number of shares of Common Stock or Preferred
Stock of the Company of any class or series, then, upon the occurrence of any
subdivision, combination or stock dividend of such class or series of stock, the
specific number of shares so referenced in this Agreement shall automatically be
proportionally adjusted to reflect the effect on the outstanding shares of such
class or series of stock by such subdivision, combination or stock dividend.
5.11 AGGREGATION OF STOCK. All shares held or acquired by affiliated
--------------------
entities or persons shall be aggregated together for the purpose of determining
whether the share ownership of any entity or person satisfies the requirements
under this Agreement with respect to the availability of any rights under this
Agreement.
23
<PAGE>
5.12 DELAYS OR OMISSIONS. No delay or omission to exercise any right,
-------------------
power or remedy accruing to any party hereto upon any breach or default of any
other party under this Agreement shall impair any such right, power or remedy
nor shall it be construed to be a waiver of any such breach or default, or an
acquiescence therein, or in any similar breach or default occurring thereafter;
nor shall any waiver of any single breach or default be deemed a waiver of any
other breach or default theretofore or thereafter occurring.
[REST OF PAGE LEFT BLANK INTENTIONALLY]
24
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date and year first above written.
COMPANY STOCKHOLDERS
- ------- ------------
CENTAUR PHARMACEUTICALS, INC. /s/ John M. Carney
----------------------------
John M. Carney
By: /s/ Brian D. Frenzel
---------------------------------
Brian D. Frenzel, President
/s/ Patricia A. Carney
----------------------------
Patricia A. Carney
ABERLYN
- -------
ABERLYN CAPITAL MANAGEMENT /s/ Robert A. Floyd
LIMITED PARTNERSHIP ----------------------------
Robert A. Floyd [trustee of Robert
A. Floyd 1995 Revocable Trust and
Marlene G. Floyd 1995 Revocable
Trust]
By: Aberlyn Capital Management Co., Inc.,
General Partner OKLAHOMA MEDICAL
RESEARCH FOUNDATION
By: /s/ Diana M. Spano
----------------------------------- By: /s/ William G. Thurman, M.D.
Name: Diana M. Spano -------------------------------
--------------------------------- Name: William G. Thurman, M.D.
Title: Vice President -----------------------------
-------------------------------- Title: President
----------------------------
PROSPEKTIVA THE UNIVERSITY OF KENTUCKY
- -----------
RESEARCH FOUNDATION
PROSPEKTIVA INVESTMENTS
By: /s/ Per Erik Danielsen By:________________________________
-----------------------------------
Name: Per Erik Danielsen Name:______________________________
---------------------------------
Title: Principal Title:_____________________________
--------------------------------
[SIGNATURE PAGE TO THIRD AMENDED AND
RESTATED INVESTORS' RIGHTS AGREEMENT]
[ADDITIONAL SIGNATURE PAGES WITH SIGNATURES OF PRIOR INVESTORS (IDENTIFIED ON
EXHIBIT A-1) AND NEW INVESTORS (IDENTIFIED ON EXHIBIT A-2) OMITTED]
25
<PAGE>
EXHIBIT A-1
PRIOR INVESTORS
---------------
Name & Address Name & Address
- -------------- --------------
Charter Ventures Brian D. Frenzel and Constance
525 University Avenue, Suite 1500 S.A. Frenzel as Community Property
Palo Alto, CA 94301 1973 Newcastle Drive
Fax No.: Los Altos, CA 94024
Fax No.:
Mark R. Collins and Susan L. Paul F. Glenn
Collins as Community Property c/o Glenn Foundation
1250 Coast Village Road, Suite K 1250 Coast Village, Rd., Ste. K
Santa Barbara, CA 93108 Santa Barbara, CA 93108
Fax No.: Fax No.:
Commonwealth BioVentures V Jeremy Goldberg
Limited Partnership 397 Marlboro Street,
One Innovation Drive Boston, MA 02115
Worcester, MA 01605 Fax No.:
Fax No.:
Concord Partners II, L.P. George W. Holbrook, Jr.
535 Madison Avenue Bradley Resources Co.
New York, NY 10022 107 John Street
Fax No.: Southport, CT 06490
Fax No.:
Guy P. Curtis and Frances L. Robert Horton
Curtis P.O. Box 2294
Co-Trustees FBO Guy P. Curtis and Carefree, AZ 85377
Frances L. Curtis dated 8/1/91 Fax No.:
2133 Tokalon Street
San Diego, CA 92110-1247
Fax No.:
Dillon, Read & Co. Inc., as agent Gary S. Kledzik, Ph.D.
535 Madison Avenue 922 Fellowship Road
New York, NY 10022 Santa Barbara, CA 93109
Fax No.: Fax No.:
Charles Engles Nancy M. Lessner Trust
1299 Gilpin St., #6W 627 Lilac Drive
Denver, CO 80218 Santa Barbara, CA 93108
Fax No.: Fax No.:
26
<PAGE>
F & W Investments 1992 Lexington Partners IV, L.P.
Two Palo Alto Square, Suite 800 535 Madison Avenue
Palo Alto, CA 94306 New York, NY 10022
Attn: Gordon K. Davidson, Esq. Fax No.:
Fax No.:
Ling-Yun Wu Sheldon M. Wool
8/F, TFIT Tower 403 Simon Willard Road
85 Jen Ai Road, Section 4 Concord, MA 01742
Taipei 106, Taiwan Fax No.:
Fax No.:
Charles McVean Raymond A. & Carol B. Williams
McVean Trading Company as Community Property
850 Ridge Lake Blvd. S G01 2600 El Camino Real, Suite 607
Memphis, TN 38120 Palo Alto, CA 94306
Fax No.: Fax No.:
Menlo Ventures IV, L.P. Michael Wharton
3000 Sand Hill Road McVean Trading Company
Building 4, Suite 100 850 Ridge Lake Blvd.
Menlo Park, CA 94025 Memphis, TN 38120
Fax No.: Fax No.:
Daniel Ritchie Bismuth Investments Limited*
2000 East 12th Street Suite 922C
Apt. 1-A Europort, GIBRALTAR
Denver, CO 80206 Fax No.:
Fax No.:
Randy Scott Neptune Investment Company
c/o Cornish & Carey 2128 Stuart Street
400 Hamilton Avenue Denver, CO 80212
Palo Alto, CA 94301 Fax No.:
Fax No.:
Smith Barney CND for the IRA of Charter Ventures II, L.P.
Jack Love 525 University Avenue, Ste. 1500
Acct # OSN-465909 Palo Alto, CA 94301
c/o Smith Barney, Attn: Dan Fax No.:
Heidman
333 West 34th Street, 7th Floor
New York, NY 10001
Fax No.:
George J. Still, Jr. Lexington Partners IV, L.P.
3000 Sand Hill Road 535 Madison Avenue
Building 3, Suite 245 New York, NY 10022
Menlo Park, CA 94025 Fax No.:
Fax No.:
27
<PAGE>
Declaration of Trust made on Declaration of Trust made on
August August
17, 1935 by Winfield S. Smyth 17, 1935 by Winfield S. Smyth
for the for the
benefit of Joan S. Smyth and benefit of Joan S. Smyth and
Others Others
- - Gamble Share - Carper Share
c/o Lennart Lindberg, Trustee c/o Lennart Lindberg, Trustee
440 Main Street 440 Main Street
Worcester, MA 01608 Worcester, MA 01608
Fax No.: Fax No.:
Neuroscience Partners Limited
Partnership
100 International Blvd.
Etobicoke, Ontario
CANADA M9W 656
Fax No.:
* Effective notice to Bismuth Investments Limited requires a copy to both of
the following as well as the above address: Springfield & Company,
Attention: Legal Department, 1188 Centre Street, Newton Centre, MA 02159;
and Springfield Financial Advisory Limited, Hang Lung Centre, 22nd Floor,
2-20 Paterson Street, Causeway Bay, Hong Kong, fax 011-852-576-3105.
28
<PAGE>
EXHIBIT A-2
NEW INVESTORS
-------------
EXHIBIT A-2
CENTAUR PHARMACEUTICALS, INC.
SERIES D INVESTORS
FIRST CLOSING 2/14/97
NO. OF
INVESTOR NAME & ADDRESS SHARES
Walter R. Baron 13,336
Room 1220
400 East Randolph Street
Chicago, IL 60601
Bradley Resources Company 7,000
c/o George W. Holbrook, Jr.
P.O. Box 761-107 John Street
Southport, CT 06490-0761
John Burd 2,000
c/o LXN Corporation
5830 Oberlin Dr., Ste. 102
San Diego, CA 92121
Charter Ventures II L.P. 40,000
A. Barr Bolan
525 University Avenue, Ste. 1500
Palo Alto, CA 94301
Dillon, Read & Co. Inc., as Agent 6,164
c/o Bob Signorino
535 Madison Avenue
New York, NY 10022
Charles R. Engles 3,333
5 Wintercreek
Portola Valley, CA 94028
J. Richard Crow 13,333
Sparks Companies
889 Ridge Lake Blvd., Ste. 301
Memphis, TN 38120
James J. Fritz 13,334
234 Millcreek Lane
Naperville, IL 60540
Paul F. Glenn, Trustee, Paul F. Glenn
Revocable Trust 66,667
c/o Glenn Foundation
1250 Cost Village Rd., Ste. K
Santa Barbara, CA 93108
Glenn Foundation for Medical Research 33,334
c/o Glenn Foundation
1250 Cost Village Rd., Ste. K
Santa Barbara, CA 93108
William G. Goldstandt 20,000
10040 Happy Valley #469
Scottsdale, AZ 85255
Lloyd A. Hightower and Julia J. Hightower 13,333
c/o Hightower Investment, LLC
108-B Hilltop Drive
Segum, WA 98382
George Kramer 13,350
151 E. 79th Street
New York, NY 10021
James D. Lackie 14,000
5810 Shelby Oaks Drive
Memphis, TN 38134
Nancy M. Lessner Trust 13,334
Nancy Lessner
627 Lilac Drive
Santa Barbara, CA 93108
Menlo Ventures IV, L.P. 66,666
c/o Michael Laufer
3000 Sand Hill Road, Bldg. 4-Ste. 100
Menlo Park, CA 94025
Merrill Lynch as Custodian FBO 412-82-H44 3,000
c/o Robert Horton
2525 E. Camelback Rd., Ste. 300
Phoenix, AZ 85016
EXHIBIT A-2
CENTAUR PHARMACEUTICALS, INC.
SERIES D INVESTORS
FIRST CLOSING 2/14/97
NO. OF
INVESTOR NAME & ADDRESS SHARES
Kenneth M. Norwood 14,000
7750 Dogwood Road
Germantown, TN 83138
Oklahoma Medical Research Foundation 20,000
c/o William G. Thurman, M.D.
825 N.E. 13th Street
Oklahoma City, OK 73104
Mark W. Pacelli 14,000
206 W. Ayres
Hinsdale, IL 60521
Porcelain Partners, L.P. 14,000
Morgan Stanley & Co. Acct. 038-05330-2
One Pierpont Plaza-c/o Sheung Tom
Brooklyn, NY 11201
Jefferey Douglas Sennott 15,000
451 Chaptel Hill Lane
Northfield, IL 60093
Richard J. Sennott 30,000
1701 Gulf of Mexico Drive Unit 601
Longboat Key, FL 34228
Robert Bradley Sennott 15,000
747 42nd Street
Sarasota, FL 34234
The Slavich Family Trust, Denis M. Slavich
Trustee 12,500
3633 Jackson Street
San Francisco, CA 94118
John A. Sprague IRA 33,334
c/o Jupiter Partners LP
30 Rockefeller Plaza, #4525
New York, NY 10112
Michael Towbes 20,000
The Towbes Group
21 East Victoria Street, Ste. 300
Santa Barbara, CA 93101
William M. Van Cleve Trust dated 6/19/95,
William M. Van Cleve, Trustee 12,000
8 Dromara Road
St. Louis, MO 63124
Selvi Vescovi 5,000
924 Essex Circle
Kalamazoo, MI 49008
S. Robert Weltz, Jr. 19,166
415 Hot Springs Road
Santa Barbara, CA 93108
Banca del Gottardo 213,767
Mr. Fabio Testori
Viole S. Franscini 8
6900 Lugano
Switzerland
Buss Investment AG 210,000
Mr. Hans Jorg Buss
Norzissenweg 3
CH 4102 Binningen
Switzerland
Fonds Finans a.s. 4,000
c/o Tore Elstad Forgrigd
Haakon Vll's gt. 2
P.O. Box 1782 Vika
0122 Oslo
Norway
EXHIBIT A-2
CENTAUR PHARMACEUTICALS, INC.
SERIES D INVESTORS
FIRST CLOSING 2/14/97
NO. OF
INVESTOR NAME & ADDRESS SHARES
Hicksville os 12,000
Tore Sviland c/o Delta Invest as
Haakon Vll's gt. 6
6. etg. Oslo
Norway
Hyndoy as 10,000
Egil Wichstraud Iversen
Holmenkolveien 135
0391 Oslo, Norway
Hiroya Iwasaki 13,340
4-7-14 Yushima Bunkyoku
Tokyo, Japan
Widor Kirkeby 3,000
Huk Aveny 54 A
0287 Oslo, Norway
Harold Henry Larsen 6,668
Lundovn. 45
3032 Drommen
Norway
Monsun as 133,333
c/o Magne Jordanger
Askerveien 61
1370 Asker, Norway
Olav W. Pedersen 10,000
Bjormelia 65
N-14532 Bjornemyr
Norway
Troust AS 6,667
c/o Indre by Biendom
Nygardsgt. 114
5008 Bergen, Norway
Totals: 1,188,959
EXHIBIT A-2
CENTAUR PHARMACEUTICALS, INC.
SERIES D INVESTORS
SECOND CLOSING ON 3/31/97
NO. OF
INVESTOR NAME & ADDRESS SHARES
DOMESTIC:
Biotechnology Development Fund, L.P. 133,334
c/o Frank Kung
1055 Lemon St.
Menlo Park, CA 94025
Brian D. Frenzel 10,000
13311 Country Way
Los Altos Hills, CA 94024
Gulf Horizons, Ltd. 7,000
c/o Herbert L. Dillon, Fr.
3100 Weslayan, Ste. 360
Houston, TX 77027
Robert Morefield, Trustee of the
Robert Morefield Trust dtd. 2/26/88 4,000
725 El Rancho Road
Santa Barbara, CA 93108
John A. Sprague 33,334
c/o Jupiter Partners LP
30 Rockefeller Plaza, #4525
New York, NY 10112
FOREIGN:
Odd A. Danielsen 12,000
N. Stor at 46
3015 Drammen Norway
Informatique-MTF SA 6,667
c/o Mark Busser/bsr
Route due Bleuet 1
1762 Givisiez / FR
Switzerland
Ole K. Karlsen 40,000
Peter Oestbysgate 22
3014 Drammen Norway
Heinz Mueller 13,333
Unteraltstadt 28
6300 Zug Switzerland
Tommy Laupsa 6,000
Chamstr 34, 8934 Knonau
Switzerland
LGT Bank in Liechtenstein 13,400
Herengasse 12 9490 Vaduz
Principality of Lichtenstein
Niklaus Rychen 40,000
Sonnenbergstrasse 33
Ch8645 Jona Switzerland
Teknoinvest IV ANS 266,667
c/o Teknoinvest Management AS
Grev Wedels Pl. 5, P.O. Box 556 Sentrum
0105 Oslo, Norway
Traust AS 16,000
5008 Bergen Norway
Totals: 601,735
EXHIBIT A-2
CENTAUR PHARMACEUTICALS, INC.
SERIES D INVESTORS
THIRD CLOSING
NO. OF
INVESTOR NAME & ADDRESS SHARES
Alexandra Huitfeldt Holding AS 118,333
Universitets 6T 14
0164, Oslo Norway
Halvor Isaksen 30,000
Universitets 6T 14
0164, Oslo Norway
Istria AS 118,333
Universitets 6T 14
0164 Oslo, Norway
Neuroscience Partners Limited Partnership 133,333
c/o MDS Health Ventures Capital Corp.
Attn: Edward K. Rygiel
100 International Blvd.,
Etobicoke, Ontario M9W 6J6
Totals: 399,999
EXHIBIT A-2
CENTAUR PHARMACEUTICALS, INC.
SERIES D INVESTORS
FOURTH CLOSING ON 10/3/97
NO. OF
INVESTOR NAME & ADDRESS SHARES
Veron International Ltd. 9,307
Top Floor, Chinachem Golden Plaza
77 Mody Road
Tsimshtsui East
Kowloon, Hong Kong
Total: 9,307
Grand Total (All Closings): 2,200,000
29
<PAGE>
EXHIBIT B
STOCKHOLDERS
------------
Name & Address Name & Address
- -------------- --------------
John M. Carney and Patricia A. Carney Robert A. Floyd
20010 Heritage Oak 9608 Regal Lane
Saratoga, CA 95070 Oklahoma City, OK 73162
Fax No.: Fax No.:
Oklahoma Medical Research The University of Kentucky
Foundation Research Foundation*
825 N.E. 13th Street 214 Kinkead Hall
Oklahoma City, CA 73104 Lexington, KY 40506-0057
Fax No.: Fax No.:
* As of October 3, 1997, the University of Kentucky Research Foundation had
not become a party to the Investors' Rights Agreement.
---
30
<PAGE>
EXHIBIT 5.01
------------
October 9, 1998
Centaur Pharmaceuticals, Inc.
484 Oakmead Parkway
Sunnyvale, CA 94086
Gentlemen/Ladies:
At your request, we have examined the Registration Statement on Form S-1
(the "Registration Statement") filed by you with the Securities and Exchange
Commission (the "Commission") on June 18, 1998 (Registration Number 333-
57165), Amendment No. 1 to such Registration Statement filed by you with the
Commission on July 15, 1998, Amendment No. 2 to such Registration Statement
filed by you with the Commission on July 24, 1998, Amendment No. 3 to such
Registration Statement filed by you with the Commission on August 13, 1998,
Amendment No. 4 to such Registration Statement filed by you with the
Commission on August 20, 1998, Amendment No. 5 to such Registration Statement
filed by you with the Commission on August 26, 1998, Amendment No. 6 to such
Registration Statement filed be filed by you with the Commission on September
4, 1998, Amendment No. 7 to such Registration Statement filed by you with the
Commission on September 4, 1998, Amendment No. 8 to such Registration
Statement filed by you with the Commission on October 1, 1998, and Amendment
No. 9 to such Registration Statement to be filed by you with the Commission on
October 9, 1998 (collectively, the "Registration Statement") in connection
with the offer and sale of an aggregate of 1,500,000 shares of your Common
Stock (the "Stock").
In rendering this opinion, we have examined the following:
(1) the Registration Statement, including the exhibits filed as a part
thereof;
(2) the Prospectuses prepared in connection with the Registration
Statement;
(3) the minutes of meetings and actions by written consent of the
stockholders and Board of Directors that are contained in your
minute books that are in our possession; and
(4) a Management Certificate addressed to us and dated of even date
herewith executed by the Company containing certain factual and
other representations.
<PAGE>
Centaur Pharmaceuticals, Inc.
October 9, 1998
Page 2
In our examination of documents for purposes of this opinion, we have
assumed, and express no opinion as to, the genuineness of all signatures on
original documents, the authenticity of all documents submitted to us as
originals, the conformity to originals of all documents submitted to us as
copies, the legal capacity of all natural persons executing the same, the lack
of any undisclosed terminations, modifications, waivers or amendments to any
documents reviewed by us and the due execution and delivery of all documents
where due execution and delivery are prerequisites to the effectiveness
thereof.
As to matters of fact relevant to this opinion, we have relied solely
upon our examination of the documents referred to above and have assumed the
current accuracy and completeness of the information obtained from public
officials and records referred to above. We have made no independent
investigation or other attempt to verify the accuracy of any of such
information or to determine the existence or non-existence of any other
factual matters; however, we are not aware of any facts that would lead, us to
believe that the opinion expressed herein is not accurate.
We are admitted to practice law in the State of California, and we express
no opinion herein with respect to the application or effect of the laws of any
jurisdiction other than the existing laws of the United States of America and
the State of California and (without reference to case law or secondary sources)
the existing Delaware General Corporation Law.
Based upon the foregoing, it is our opinion that the 1,500,000 shares
of Stock to be issued and sold by you, when issued and sold in the manner
referred to in the relevant Prospectus associated with the Registration
Statement, will be validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to us, if any, in the
Registration Statement, the Prospectus constituting a part thereof and any
amendments thereto.
<PAGE>
Centaur Pharmaceuticals, Inc.
October 9, 1998
Page 3
This opinion speaks only as of its date and we assume no obligation to
update this opinion should circumstances change after the date hereof. This
opinion is intended solely for your use as an exhibit to the Registration
Statement for the purpose of the above sale of the Stock and is not to be relied
upon for any other purpose.
Very truly yours,
FENWICK & WEST LLP
By: /s/ BARRY J. KRAMER, ESQ.
---------------------------------
Barry J. Kramer, Esq.
