<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 22, 1998.
REGISTRATION NO. 333-51475
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------
AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
GENVEC, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 2834 23-2705690
(STATE OF INCORPORATION) (PRIMARY STANDARD (I.R.S. EMPLOYER
INDUSTRIAL CLASSIFICATION IDENTIFICATION NUMBER)
CODE NUMBER)
GENVEC, INC.
12111 PARKLAWN DRIVE
ROCKVILLE, MARYLAND 20852
(301) 816-0396
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
DR. PAUL H. FISCHER
CHIEF EXECUTIVE OFFICER
GENVEC, INC.
12111 PARKLAWN DRIVE
ROCKVILLE, MARYLAND 20852
(301) 816-0396
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
PAGE MAILLIARD, ESQ. LESLIE E. DAVIS, ESQ.
NAN H. KIM, ESQ. KATHY A. FIELDS, ESQ.
WILSON SONSINI GOODRICH & ROSATI TESTA, HURWITZ & THIBEAULT, LLP
PROFESSIONAL CORPORATION HIGH STREET TOWER
650 PAGE MILL ROAD 125 HIGH STREET
PALO ALTO, CALIFORNIA 94304-1050 BOSTON, MASSACHUSETTS 02110
(650) 493-9300 (617) 248-7000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
---------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If 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 a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
===============================================================================
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.001 par
value per share........ 2,875,000 $13.00 $37,375,000 $11,025.63(3)
</TABLE>
===============================================================================
(1) Includes 375,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any. Also reflects the proposed 5.9 for 1
reverse stock split of the Company's Common Stock, subject to stockholder
approval, which is anticipated to be consummated prior to the closing of
the offering contemplated hereby.
(2) Estimated solely for the purposes of computing the amount of the
registration fee in accordance with Rule 457(a).
(3) Fee previously paid in connection with original filing on April 30, 1998.
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.
===============================================================================
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 22, 1998
[LOGO OF GENVEC]
2,500,000 SHARES
COMMON STOCK
All of the 2,500,000 shares of Common Stock offered hereby are being sold by
GenVec, Inc. ("GenVec" or the "Company"). Prior to this offering, there has
been no public market for the Common Stock of the Company. It is currently
estimated that the initial public offering price will be between $11.00 and
$13.00 per share. See "Underwriting" for information relating to the method of
determining the initial public offering price. The Common Stock has been
approved for quotation on the Nasdaq National Market, upon completion of this
offering, under the symbol "GNVC."
Warner-Lambert Company ("Warner-Lambert") is a party to a strategic alliance
with the Company. Pursuant to an existing agreement with the Company, Warner-
Lambert has agreed to purchase $5,000,000 of the Company's Common Stock in a
private transaction concurrent with this offering at a price per share equal to
125% of the initial public offering price. See "Business--Strategic Alliances--
Corporate Collaborations--Warner-Lambert Company."
-----------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 6.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE 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
PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.................................. $ $ $
- --------------------------------------------------------------------------------
Total(3)................................... $ $ $
================================================================================
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses of the offering payable by the Company estimated
at $900,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 375,000 shares of Common Stock solely to cover over-
allotments, if any. See "Underwriting." If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $ , $ and $ , respectively.
-----------
The Common Stock is offered by the Underwriters as stated herein, subject to
receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that delivery of such shares will be made
through the offices of BancAmerica Robertson Stephens, San Francisco,
California, on or about , 1998.
BANCAMERICA ROBERTSON STEPHENS
J.P. MORGAN & CO.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
The date of this Prospectus is , 1998
<PAGE>
Treatment of Coronary Artery Disease with Gene Therapy
GenVec's lead product candidate, BIOBYPASS angiogen, is designed to induce
new blood vessel formation in tissues with inadequate blood flow. In December
1997, the Company initiated a Phase I/II clinical trial with BIOBYPASS
angiogen for direct injection into the hearts of patients with coronary artery
disease who are undergoing coronary artery bypass graft surgery. The Company
also intends to commence a Phase I/II clinical trial in patients with
peripheral vascular disease in May 1998.
[Two figures of coronary angiograms from pig models of coronary artery disease
illustrate the text immediately below the figures. Figure 1 is taken from the
control subject. Figure 2 is taken from the subject treated with BIOBYPASS
angiogen and shows the induction of new blood vessels relative to Figure 1 and
the refilling of the left circumflex artery beyond the area of blockage.]
BIOBYPASS angiogen was evaluated in a pig model of coronary artery disease.
Blood flow through the left circumflex artery of the pig heart was blocked
with an ameroid constrictor, shown in the upper left corners of both images.
In a single procedure three weeks later, the hearts received multiple
injections around the blockage site with either BIOBYPASS angiogen or a
control. The coronary angiograms above were taken four weeks after the
injections. In the treated heart, BIOBYPASS angiogen induced the formation of
new blood vessels, and refilling of the left circumflex artery beyond the area
of blockage was observed (figure 2). In contrast, no filling of the circumflex
artery was visible in the control case (figure 1). These and other preclinical
data have shown that administration of BIOBYPASS angiogen to the heart
increased the number of blood vessels, improved blood flow and restored
cardiac contractility to normal. See "Risk Factors--Uncertainties Related to
Clinical Development."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN
OFFER TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT 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.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary.................................................................. 4
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 18
Dividend Policy.......................................................... 18
Capitalization........................................................... 19
Dilution................................................................. 20
Selected Financial Data.................................................. 21
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 22
Business................................................................. 26
Management............................................................... 46
Certain Transactions..................................................... 53
Principal Stockholders................................................... 54
Description of Capital Stock............................................. 56
Shares Eligible For Future Sale.......................................... 59
Underwriting............................................................. 61
Legal Matters............................................................ 62
Experts.................................................................. 62
Additional Information................................................... 63
Index to Financial Statements............................................ F-1
</TABLE>
----------------
BIOBYPASS is a trademark of the Company, and the term angiogen is used to
refer to an angiogenic agent. Tradenames and trademarks of other companies
appearing in this Prospectus are the property of their respective holders.
The Company intends to furnish to its stockholders annual reports containing
financial statements audited by an independent certified public accounting
firm and quarterly reports containing unaudited interim financial information
for each of the first three quarters of each year.
The Company was incorporated in Delaware in 1992. The Company's executive
offices are located at 12111 Parklawn Drive, Rockville, Maryland 20852, and
its telephone number is (301) 816-0396.
3
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors," and the Financial Statements and Notes
thereto, appearing elsewhere in this Prospectus. This Prospectus contains
forward-looking statements which involve risks and uncertainties. The Company's
actual results could differ materially from the results discussed in the
forward-looking statements as a result of certain factors, including those set
forth under "Risk Factors" and elsewhere in this Prospectus.
THE COMPANY
GenVec focuses on the development and commercialization of novel gene therapy
products for major disease markets. GenVec's lead product candidate, BIOBYPASS
angiogen, is designed to induce angiogenesis, or new blood vessel formation, in
tissues with inadequate blood flow. BIOBYPASS angiogen uses an adenovirus
vector to deliver and express the gene for vascular endothedial growth factor-
121 ("VEGF/121/"). BIOBYPASS angiogen is being developed for the treatment
of coronary artery disease ("CAD") and peripheral vascular disease ("PVD"), and
is intended to be used either alone or as an adjunct to existing surgical
procedures. In December 1997, the Company initiated a Phase I/II clinical trial
with its BIOBYPASS angiogen for direct injection into the hearts of patients
with CAD who are undergoing coronary artery bypass graft ("CABG") surgery. The
Company also intends to commence a Phase I/II clinical trial in patients with
PVD in May 1998. The Company has entered into a collaboration with the Warner-
Lambert Company ("Warner-Lambert") to develop and commercialize BIOBYPASS
angiogen and other gene therapy products for therapeutic angiogenesis. Under
the terms of the collaboration, Warner-Lambert may pay to the Company a total
of more than $100 million in milestone payments, research funding, equity
purchases and technology access fees, if specified milestones are achieved. As
of April 20, 1998, Warner-Lambert had paid to the Company $13.5 million under
this collaboration, and had purchased $2.0 million of the Company's stock.
Additionally, GenVec is developing product candidates and vector technology
in the areas of cardiovascular disease, oncology and neurology. For the
treatment of restenosis associated with angioplasty and vascular damage
associated with arteriovenous ("A-V") grafts, GenVec is developing Ad.iNOS, an
adenovirus vector containing the inducible nitric oxide synthase ("iNOS") gene.
In oncology, GenVec is developing Ad.TNFa under a collaboration agreement with
Varian Associates, Inc. ("Varian"). Ad.TNFa, an adenovirus vector containing
the tumor necrosis factor alpha ("TNFa") gene, is designed to enhance the
effectiveness of radiation therapy without increasing toxicity to normal
tissue. In collaboration with Fuso Pharmaceutical Industries, Ltd. ("Fuso"),
GenVec is developing Ad.CD and is conducting research on immunotherapy of
cancer based on the delivery of tumor antigen genes. Ad.CD, an adenovirus
vector containing the cytosine deaminase ("CD") gene, is designed to convert a
nontoxic precursor drug into fluorouracil to effect tumor destruction, either
alone or in combination with radiation therapy. In neurology, GenVec intends to
develop product candidates through the application of its herpes simplex virus
("HSV") vector technology.
To customize gene therapy products for specific medical needs, GenVec is
developing vectors for cell-specific gene delivery and promoters which regulate
the level and duration of gene expression. GenVec's technology portfolio
includes: (i) therapeutic genes such as VEGF/121/, iNOS, TNF(alpha) and CD; (ii)
vector systems such as adenovirus and HSV; (iii) receptor mediated targeting
technology and (iv) tissue-specific and inducible promoters.
GenVec intends to successfully develop and commercialize product candidates
by applying the following business strategies: (i) enhance leadership in
therapeutic angiogenesis; (ii) expand its portfolio of products under
development; (iii) broaden its technology platform; (iv) strengthen product
development through corporate collaborations and (v) maintain and expand
intellectual property strength.
4
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common Stock Offered by the Company.......... 2,500,000 shares
Common Stock Outstanding after the Offering.. 9,857,784 shares (1)
Use of Proceeds.............................. For research and development,
clinical trials, capital
expenditures, working capital
and general corporate purposes,
including possible acquisitions
of complementary technology,
products or businesses. See "Use
of Proceeds."
Nasdaq National Market Symbol................ GNVC
</TABLE>
SUMMARY FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------- --------------------
1995 1996 1997 1997 1998
------- ------- -------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................... $ 1,005 $ 698 $10,188 $ -- $ 3,688
Operating expenses:
Research and development.. 6,500 6,355 8,986 1,614 3,093
General and
administrative........... 2,025 2,947 2,720 550 739
Total operating expenses.... 8,967 9,302 11,706 2,164 3,832
Interest income, net........ 413 496 263 74 115
------- ------- -------- --------- ---------
Net loss.................... $(7,549) $(8,108) $ (1,255) $(2,090) $ (29)
======= ======= ======== ========= =========
Pro forma basic net loss per
share (2).................. $ (0.18) $ (0.01)
======== =========
Shares used in computing pro
forma basic
net loss per share (2)..... 6,999 7,019
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
-------------------------
ACTUAL AS ADJUSTED (3)
-------- ---------------
(unaudited)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents and short-term
investments........................................ $ 7,262 $ 39,262
Working capital..................................... 7,883 39,883
Total assets........................................ 10,692 42,692
Accumulated deficit................................. (28,889) (28,889)
Total stockholders' equity ......................... 8,639 40,639
</TABLE>
- --------
(1) Based on number of shares of Common Stock outstanding as of March 31, 1998.
Includes 333,333 shares of Common Stock to be sold to Warner-Lambert at an
assumed price of $15.00 per share. Excludes (i) 1,105,955 shares of Common
Stock issuable upon exercise of outstanding options as of March 31, 1998,
at a weighted average exercise price of $1.95 per share and (ii) 320,416
shares of Common Stock issuable upon exercise of outstanding warrants as of
March 31, 1998, at a weighted average exercise price of $12.65 per share.
(2) See Note 2 of Notes to Financial Statements for a description of the
computation of pro forma basic net loss per share.
(3) As adjusted to give effect to (i) the conversion of all issued and
outstanding shares of Preferred Stock into 6,042,263 shares of Common Stock
upon the completion of this offering; (ii) the sale of 2,500,000 shares of
Common Stock offered hereby at the assumed initial public offering price of
$12.00 per share and (iii) the sale of 333,333 shares of Common Stock to
Warner-Lambert at an assumed price of $15.00 per share. See "Use of
Proceeds" and "Capitalization."
----------------
Unless otherwise indicated, all information in this Prospectus (i) has been
adjusted to give effect to the conversion of all outstanding shares of
Preferred Stock into Common Stock and the conversion of all outstanding
warrants to purchase shares of Preferred Stock into warrants to purchase Common
Stock upon the completion of this offering; (ii) has been adjusted to give
effect to a proposed 5.9 for 1 reverse split of the shares of Common Stock and
Preferred Stock, which is subject to stockholder approval (the "Reverse Split")
and (iii) assumes no exercise of the Underwriters' over-allotment option. See
"Capitalization" and "Underwriting."
5
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing shares of the Common Stock offered hereby. This
Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain
factors, including those set forth in the following risk factors and elsewhere
in this Prospectus.
UNCERTAINTIES RELATED TO CLINICAL DEVELOPMENT
Before obtaining regulatory approvals for the commercial sale of its product
candidates, including its BIOBYPASS angiogen, the Company or its corporate
collaborators will be required to demonstrate through preclinical studies and
clinical trials that the product candidates are safe and effective for use in
each target indication. To date, the Company's product candidates have only
undergone limited preclinical evaluation and in some cases, initial clinical
testing. There can be no assurance that the Company will obtain authorization
for human clinical testing of any of its products currently in research or
preclinical development or for further testing of products in clinical trials.
In addition, the results from preclinical studies and early clinical trials
may not be predictive of results that will be obtained in large-scale testing,
and there can be no assurance that the clinical trials conducted by the
Company or its collaborators will demonstrate sufficient safety and efficacy
to obtain the required regulatory approvals. Further, the Company or
regulatory authorities may suspend clinical trials at any time if it is
thought that the participants are being exposed to unacceptable health risks.
Even after regulatory approval, a product may later be shown to be unsafe or
not to have its purported effect, preventing its widespread use or requiring
its withdrawal from the market and exposing the Company to potential product
liability. The Company has limited experience conducting clinical trials and
intends to rely primarily on its corporate collaborators for clinical testing
of its product candidates.
Clinical trials are often conducted with patients having the most advanced
stages of disease. During the course of treatment, these patients can die or
suffer other adverse medical effects for reasons that may not be related to
the proposed product being tested, but which can nevertheless affect clinical
trial results. Various companies in the pharmaceutical industry have suffered
significant setbacks in advanced clinical trials, even after attaining
promising results in earlier trials. Clinical trials for the product
candidates being developed by the Company may be delayed by many factors. Any
delays in, or termination of, the clinical trials of any of the Company's
product candidates, or the failure of any clinical trials to meet applicable
regulatory standards, could have a material adverse effect on the Company's
business, financial condition and results of operations.
UNCERTAINTIES RELATED TO GENE THERAPY
The Company's products are subject to risks particular to the development of
gene therapy products. Gene therapy is a new and rapidly evolving medical
approach, whose safety and efficacy have not been demonstrated on a widespread
basis. Data relating to the Company's specific approaches to gene therapy are
also limited. Product development involving new therapies is highly uncertain,
and gene therapy generally, or the Company's specific gene therapy products,
may prove to have undesirable and unintended side effects, show unacceptable
toxicity, trigger immune responses, demonstrate inadequate therapeutic
efficacy, or have other characteristics that may prevent or limit their
commercial use.
The Company's product candidates, including its BIOBYPASS angiogen and its
gene delivery technologies, are in the early developmental stage and require
significant additional research and development, testing and regulatory
approval. To date no gene therapy products have been successfully manufactured
on a large scale or commercialized by the Company or others. The Company's
development of products will be subject to other risks of failure including,
among others, the possibilities that any such products will be found to be
ineffective or toxic, or otherwise fail to receive necessary regulatory
approvals; that any of the products, if safe and effective, will prove
difficult or impossible to manufacture on a large scale
6
<PAGE>
or will be uneconomical to market; that the proprietary rights of third
parties will preclude the Company or its collaborators from marketing any
products developed; that the products will fail to achieve market acceptance;
and that third parties will market equivalent or superior products. As a
result, there can be no assurance that the Company or its collaborators will
be able to develop, manufacture and successfully commercialize the Company's
product candidates within a reasonable time frame or ever. Failure to develop
successfully the Company's current product candidates would materially and
adversely affect the Company's business, financial condition and results of
operations.
RELIANCE ON WARNER-LAMBERT AND OTHER CORPORATE COLLABORATORS
The Company's strategy for development and commercialization of therapeutic
products depends, in large part, upon the formation of multiple corporate
collaborations and licensing arrangements with third parties. The Company has
established a corporate collaboration with Warner-Lambert in the area of
therapeutic angiogenesis, and has granted Warner-Lambert the right to conduct
research, development, marketing, commercialization and certain manufacturing
activities relating to gene therapy products incorporating the vascular
endothelial growth factor ("VEGF") gene for therapeutic angiogenesis.
Accordingly, the Company is substantially dependent on Warner-Lambert for the
development, funding and commercial success of any of its therapeutic
angiogenesis product candidates, including BIOBYPASS angiogen. In addition,
payments from Warner-Lambert are expected to constitute a substantial portion
of the Company's revenues for the next several years. The Warner-Lambert
agreement may be terminated by either party for breach. The research program
under the Warner-Lambert agreement may be terminated by Warner-Lambert on six
months prior written notice after July 21, 2000, in which event Warner-Lambert
would have no further research funding obligation to the Company. If Warner-
Lambert were to terminate its agreement with the Company or otherwise fail to
conduct its collaborative activities successfully and in a timely manner, the
preclinical and clinical development or commercialization of BIOBYPASS
angiogen, or any other potential therapeutic angiogenesis product candidates,
would be delayed or terminated. Any such delay or termination could have a
material adverse effect on the Company's business, financial condition and
results of operations. The success of the corporate collaboration with Warner-
Lambert will depend in part upon Warner-Lambert's own competitive, marketing
and strategic considerations, including the relative advantages of alternative
products being developed and marketed by Warner-Lambert and its competitors.
If Warner-Lambert is unsuccessful in commercializing any product candidate for
any reason, the Company's business, financial condition and results of
operations could be materially adversely affected.
The Company has also entered into strategic alliances with Fuso in certain
areas of oncology, and Varian in the area of radiation therapy. Each of these
and any other strategic alliances requires time, resources and management
attention. The Company's strategy includes entering into multiple, concurrent
corporate collaborations. There can be no assurance that the Company will
successfully manage simultaneous collaborative programs. Failure by the
Company to manage existing and future strategic alliances, maintain
confidentiality among corporate collaborators or prevent the occurrence of
conflicts among corporate collaborators could lead to disputes that result in,
among other things, a significant strain on management resources, legal claims
involving significant time, expense and loss of reputation, loss of capital or
loss of revenues, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations. Moreover,
the Company has received substantially all of its revenues since inception
from its corporate collaborators and expects to continue to do so in the near
term. There can be no assurance that the Company will successfully establish
additional corporate collaborations or licensing arrangements in the future
under terms acceptable to the Company or that any future corporate
collaborations or licensing arrangements will ultimately be successful.
Failure of the Company to enter into additional corporate collaborations could
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company intends to rely primarily on corporate collaborators for
preclinical studies, clinical development, regulatory approval, manufacturing
and marketing of its gene therapy products, if any. Agreements with corporate
collaborators typically allow such collaborators significant discretion in
electing
7
<PAGE>
whether to pursue any of these activities. The Company cannot control the
amount and timing of resources its corporate collaborators may devote to the
Company's programs or potential products, and there can be no assurance that
such collaborators will perform their obligations as expected. A corporate
collaborator's performance under its agreement with the Company could be
materially adversely affected if such collaborator were involved in certain
third-party transactions such as a business combination or in the event that
the corporate collaborator experienced a significant strategic shift in its
business focus. If any corporate collaborator were to breach its agreement
with the Company, otherwise fail to conduct its collaborative activities in a
timely manner or terminate the collaboration agreement early, such action
could have a material adverse effect on the Company's business, financial
condition and results of operations. The failure of a collaborator to develop
or commercialize a product to which it has rights could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Under its current corporate collaborations, the Company has agreed not to
conduct certain research, independently or with other third parties, that is
in the same field as the research conducted under the collaboration agreement.
Consequently, such arrangements have the effect of limiting the areas of
research the Company may elect to pursue, either alone or with others. There
can be no assurance that a corporate collaborator will not develop, either
alone or with others, alternative technologies or products which are
competitive with any that might result from the Company's research program
with the corporate collaborator. Possible disagreements between the Company
and its corporate collaborators, including disputes relating to the ownership
of rights to any technology developed with third parties, could lead to delays
in collaborative research, development or commercialization of certain
products or could require or result in litigation or arbitration, which would
be time consuming and expensive, and could have a material adverse effect on
the Company's business, financial condition and results of operations.
EARLY STAGE OF COMPANY DEVELOPMENT; LIMITED EXPERIENCE
The Company is at an early stage of development and has limited resources
and operating experience. To date, the Company has no experience with respect
to conducting late stage clinical trials, obtaining regulatory approvals for
product commercialization, marketing, product sales and large-scale
manufacturing. The Company will depend, to a significant extent, on the
resources and experience of corporate collaborators in these and related
areas. There can be no assurance that the Company will be able to enter into
arrangements with corporate collaborators on acceptable terms, if at all.
Failure to enter into acceptable collaborative arrangements, or the failure of
collaborators to provide the Company with adequate resources and experience,
may have a material adverse effect on the Company's ability to develop and
deliver products on a timely and competitive basis, if at all. To the extent
the Company directly engages in the late stage clinical trials, marketing,
sales and large-scale manufacturing of its product candidates, it will require
substantial additional funds, personnel and production facilities.
INTELLECTUAL PROPERTY
The patent positions of pharmaceutical, biopharmaceutical and biotechnology
companies, including the Company, are generally uncertain and involve complex
legal and factual questions. In addition, patent law, and particularly patent
law relating to the gene therapy field, is still evolving. Development and
commercialization of the Company's product candidates and any potential
products will require, among other things, the integration of genes, vectors
and promoters with a delivery mechanism and the development of commercially
viable manufacturing processes. The Company's commercial success will be
dependent in part upon achieving such integration and development without
infringing the proprietary rights of others and upon obtaining intellectual
property protection that will give the Company's products an exclusive market
position.
Certain intellectual property components used in developing gene therapy
products, such as certain vectors and promoters used by the Company and
others, are in the public domain. As a result, the Company is unable to obtain
patent protection with respect to such components and third parties can freely
use such
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components. There can be no assurance that third parties will not develop
products using such components that compete with the Company's potential
products.
There can be no assurance that any of the pending patent applications owned
or licensed by the Company contain patentable and enforceable claims or will
result in valid issued patents, that the claims of any issued patents or any
patents issued in the future are valid and enforceable and will provide
meaningful protection, that the Company or its collaborators will develop
additional proprietary technologies that are patentable, or that any patents
now or in the future licensed or issued to the Company or its collaborators
will provide a basis for commercially viable products or will provide the
Company with any competitive advantages. Furthermore, there can be no
assurance that others will not independently develop similar or alternative
technologies, duplicate any of the Company's technologies, or, if patents are
licensed or issued to the Company, design around or otherwise circumvent the
patented technologies or other intellectual property licensed to or developed
by the Company. For example, while the Company has an exclusive license under
two United States patents relating to the VEGF/121/ gene and the use
thereof for gene therapy applications, third parties have patents for other
forms of the VEGF gene and such third parties or their licensees may develop
products using such other forms of the VEGF gene. There can be no assurance
that products based on such other forms of the VEGF gene or based upon other
growth factors will not be functionally equivalent to or better than the
Company's proposed products, or that such other products will not be more
commercially successful than any products commercialized by the Company or its
collaborators for other reasons, such as superior marketing or lower costs.
Similarly, other parties hold patents for other nitric oxide synthase, tumor
necrosis factor and CD genes. Patents and patent applications of the Company,
its collaborators and its licensors may become involved in interferences,
oppositions or similar proceedings, and there can be no assurance that such
patents and patent applications will survive, in whole or in part, such
proceedings. No assurance can be given that patents issued to the Company, its
collaborators or its licensors, if any, will not be contested, narrowed,
revoked or invalidated. Academic collaborators and the U.S. government may
retain certain rights in intellectual property, including patents and patent
applications, developed by such academic collaborators.
While the Company has not conducted freedom to use patent searches on
aspects of its product candidates and potential products and may therefore be
unaware of relevant patents and patent applications of third parties, the
Company is aware of several United States patents and patent applications and
foreign patents and patent applications owned by third parties relating to
gene therapy, promoters, cell lines, vectors and delivery mechanisms which do
or may cover aspects of the Company's product candidates and potential
products or their use, or manufacture including BIOBYPASS angiogen, as well as
other aspects of the Company's technology. Because patent applications are
maintained in secrecy in the United States, the Company cannot be certain that
third parties have not filed applications relating to technology being
developed by the Company or its collaborators or technology covered by patents
or patent applications of the Company, its collaborators or its licensors.
Certain third-party patent applications contain broad claims, and it is not
possible to determine whether or not such claims will be narrowed during
prosecution or will issue as patents, even if the claims appear to encompass
prior art or have other defects. The Company, its collaborators or its
licensors may choose to oppose or challenge third-party patents and patent
applications and such an opposition or challenge can be expensive and time
consuming. There can be no assurance that any opposition or challenge will be
successful. There can also be no assurance that the development, manufacture,
use, offer for sale, sale or importation of the Company's product candidates
and potential products by the Company or its collaborators will not infringe
claims of these or other issued patents, or claims that may issue from these
or other applications or that a third party will not threaten or file an
infringement action.
If the Company or one of its collaborators brings a patent infringement
action or otherwise brings an action to protect proprietary rights against
third parties or is required to defend against a charge of patent infringement
or a charge of infringement of other intellectual property rights, substantial
costs could be incurred and such actions could result in a significant
diversion of management's time and attention. In addition to being a potential
party to patent infringement litigation, the Company is involved in an
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interference proceeding and could become involved in additional interference
proceedings declared by the United States Patent and Trademark Office or
opposition proceedings in a foreign patent office. Patent infringement actions
and other intellectual property litigation, as well as participation in
interference or opposition proceedings, can be expensive and time-consuming,
even in those instances in which the outcome is favorable to the Company.
There can be no assurance that the Company or its collaborators will prevail
in any such litigation or proceedings. The Company and its licensors obtain
intellectual property, including biological material and know-how, from third
parties pursuant to various agreements and arrangements. Third parties may
challenge the intellectual property rights of the Company or its licensors or
claim ownership of intellectual property developed by the Company or its
collaborators. The Company could incur substantial expenses in contesting such
claims, whether successful or not.
The Company has certain licenses and believes that it or its collaborators
will be required to obtain additional licenses under third-party patents and
patent applications to continue research and development and to commercialize
the Company's product candidates and potential products, and there can be no
assurance that any such license will be made available on commercially viable
terms, if at all. In addition, licensors may terminate existing or future
license agreements, or terminate the exclusive nature of such agreements, if
the Company fails to meet specified milestones or other events. Any
termination of a license, or any failure of the Company or its collaborators
to obtain any required license on reasonable terms or at all, or the failure
to maintain the exclusivity of the Company's exclusive licenses, could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company's product candidates and potential products
will require several components that may each be the subject of a license
agreement. The cumulative license fees and royalties for these components may
make the commercialization of such product candidates and potential products
uneconomical.
The Company may rely on trade secret protection and confidentiality
agreements to protect its interests. There can be no assurance that
proprietary information will not be disclosed, that others will not
independently develop substantially equivalent proprietary information or
otherwise gain access to the Company's trade secrets, or that the Company can
meaningfully protect its trade secrets. Any material leak of confidential
information into the public domain or to third parties may have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Intellectual Property."
INTENSE COMPETITION
Competition among entities attempting to identify and develop new therapies
is intense. The Company faces, and will continue to face, competition from
pharmaceutical and biotechnology companies, academic and research institutions
and government agencies, both in the United States and abroad. Many of the
Company's competitors have substantially greater capital resources, research
and development staffs, facilities, manufacturing and marketing experience,
distribution channels and human resources than the Company. Future competition
will likely come from existing competitors (including competitors with rights
to proprietary forms of the VEGF gene and other genes the Company currently
uses in its product candidates), as well as other companies seeking to develop
new treatments. Competitors or their academic collaborators may identify
important genes or delivery mechanisms before the Company, or develop gene
therapies that are more effective than those developed by the Company or its
corporate collaborators, or obtain regulatory approvals of their drugs more
rapidly than the Company or its corporate collaborators. Moreover, there can
be no assurance that the Company's competitors will not obtain patent
protection or other intellectual property rights that would limit the
Company's or its collaborators' ability to use the Company's gene therapy
technologies. Any of these events could materially and adversely affect the
Company's business, financial condition and results of operations.
The Company will rely on its corporate collaborators for support of certain
of its enabling technologies and intends to rely on its corporate
collaborators for preclinical and clinical development of related potential
products and the manufacturing and marketing of such products. Generally, the
Company's strategic alliance agreements do not preclude the corporate
collaborator from pursuing development efforts utilizing approaches distinct
from that which is the subject of the alliance. Product candidates of the
Company,
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therefore, may be subject to competition with a potential product under
development by a corporate collaborator. See "--Reliance on Warner-Lambert and
Other Corporate Collaborators."
Rapid technological development by the Company or others may result in
products or technologies becoming obsolete before the Company recovers
development expenses. Products developed by the Company could be made obsolete
by less expensive or more effective technologies, even technologies unrelated
to gene therapy. For example, competitors may also develop small molecule,
protein, antisense or other therapeutic or surgical approaches that may
compete with or obviate the need for the Company's products. There can be no
assurance that the Company will be able to make the enhancements to its
technology necessary to compete successfully with existing or newly emerging
technologies.
MANUFACTURING LIMITATIONS
The Company has limited experience in manufacturing and currently lacks the
resources or capability to manufacture any of its product candidates on a
commercial scale. It currently has a research facility for the production of
its product candidates for preclinical purposes and relies on third-party
manufacturers of its product candidates for clinical purposes. For the
Company's lead product, BIOBYPASS angiogen, Warner-Lambert has the right to
fill and finish the final product. However, production of BIOBYPASS angiogen
for future clinical trials and possible commercialization is currently
intended to be performed primarily through a third-party manufacturer. The
Company currently intends to rely primarily on corporate collaborators and
third-party manufacturers for clinical and commercial purposes. If a third-
party manufacturer cancels or terminates an existing relationship or if the
Company is unable to contract for or obtain a sufficient supply of its product
candidates on acceptable terms, there could be significant reductions in sales
and delays in bringing the Company's product candidates to market, as well as
delays in the Company's clinical testing schedule, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations. Furthermore, it is anticipated that production of the
Company's product candidates will be based in part on proprietary technology
of the Company. Successful technology transfer will be necessary. There can be
no assurance that manufacturers will abide by any limitations or
confidentiality restrictions on licenses with the Company. In addition, any
such manufacturer may develop process technology related to the manufacture of
the Company's compounds that such manufacturer owns either independently or
jointly with the Company. This would increase the Company's reliance on such
manufacturer or require the Company to obtain a license from such manufacturer
in order to have its products manufactured. There can be no assurance that any
such license would be available on terms acceptable to the Company, if at all.
Further, there can be no assurance that the arrangements with third-party
manufacturers will be successful.
Successful large-scale manufacturing of gene therapy products has yet to be
demonstrated by any third party, and it is anticipated that significant
process development changes will be necessary for the commercial process. For
example, changes in the current production process will be required for any
commercial manufacture of BIOBYPASS angiogen. There can be no assurance that
the Company or any third party will be able to manufacture commercial-scale
quantities of gene therapy products, or receive appropriate governmental
approvals.
In addition, the Company intends to continue to develop its own
manufacturing capability, which will require significant resources and will be
subject to ongoing government approval and oversight. There can be no
assurance that the Company's efforts in this regard will be successful. See
"Business--Manufacturing" and "Business--Government Regulation."
HISTORY OF OPERATING LOSSES; FUTURE CAPITAL REQUIREMENTS
The Company has incurred operating losses in each year since its inception,
and as of March 31, 1998, had an accumulated deficit of approximately $28.9
million. The Company expects that it will incur additional losses for at least
the next several years and that such losses will increase as the Company
expands its research
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and development activities. The Company's losses to date have resulted
principally from costs incurred in research and development and from general
and administrative costs associated with the Company's operations.
Substantially all of the Company's revenues to date have been derived from
payments from corporate collaborations, and the Company expects that
substantially all of its revenues for the next several years will result from
payments from corporate collaborations. There can be no assurance that the
Company will be successful in entering into any new corporate collaboration
that results in revenues. The Company expects that it will be several years,
if ever, before the Company will recognize revenue from product sales or
royalties. Failure to achieve significant revenues or profitability would have
a material adverse effect on the Company's business, financial condition and
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The Company believes that the net proceeds from this offering and the sale
of shares to Warner-Lambert, existing cash and short-term securities and
anticipated cash flow from corporate collaborations will be sufficient to
support the Company's operations at least through 1999. However, this
expectation is based on the Company's current operating plan, which could
change as a result of many factors, and the Company could require additional
funding sooner than expected. In addition, the Company may choose to raise
additional capital due to market conditions or strategic considerations even
if it has sufficient funds for its operating plan. The Company's actual future
capital requirements and the adequacy of its available funds will depend on
many factors, including progress of its research and development programs, the
number and breadth of these programs, the results and timing of the Company's
clinical trials, the ability of the Company to establish and maintain
strategic alliance and licensing arrangements and the progress of the
development and commercialization efforts of the Company's corporate
collaborators. These factors also include the level of the Company's
activities relating to the development and commercialization rights it retains
in its corporate collaboration arrangements, competing technological and
market developments and the costs involved in preparing, filing, prosecuting,
maintaining and enforcing patent claims and other intellectual property
rights.
The Company expects that it will require significant additional funding in
the future, which it may seek through public or private equity offerings, debt
financings or additional strategic alliance and licensing arrangements. Upon
the closing of this offering, the Company will have no credit facility or
other committed sources of capital. No assurance can be given that additional
financing or strategic alliances and licensing arrangements will be available
when needed, or that, if available, such financing will be obtained on terms
favorable to the Company or its stockholders. To the extent the Company raises
additional capital by issuing equity or convertible securities, ownership
dilution to stockholders will result. If adequate funds are not available when
needed, the Company may be required to curtail operations significantly or to
obtain funds by entering into strategic alliances and licensing arrangements,
in which case the Company may be required to relinquish rights to certain of
its technologies, discoveries or potential products, or to grant licenses on
terms that are not favorable to the Company, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations. Unavailability of adequate funds would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
NEED TO ATTRACT AND RETAIN KEY EMPLOYEES AND CONSULTANTS
The Company is highly dependent on its scientific and management employees.
The Company also relies heavily on consultants to assist the Company in its
research and development programs. Attracting and retaining qualified
personnel and consultants is critical to the Company's success. The loss of
the services of any of these persons could significantly impede the
accomplishment of the Company's scientific and business objectives. The
Company's success is also dependent upon its ability to attract and retain
additional qualified scientific and managerial personnel. The Company is
actively recruiting additional personnel, including, without limitation, a
Chief Financial Officer. The Company faces substantial competition for
qualified individuals from numerous biotechnology, pharmaceutical and health
care companies, universities and other research organizations. The inability
of the Company to retain its current scientific and managerial personnel
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and to attract and retain additional key employees and consultants could have
a material adverse effect on the Company's business, financial condition and
results of operations.
In addition, a significant portion of the Company's research and development
is conducted under sponsored research programs with several universities and
research institutions. The Company depends on the availability of a principal
investigator for such programs, and the Company cannot assure that any of
these individuals or their research staffs will be available to conduct
research and development for the Company. In addition, the Company's academic
collaborators are not employees of the Company. As a result, the Company has
limited control over their activities and can expect that only limited amounts
of their time will be dedicated to the Company's activities. The Company's
academic collaborators may have relationships with other commercial entities,
some of which could compete with the Company.
GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVAL
Prior to marketing, any products developed by the Company or its corporate
collaborators must undergo an extensive regulatory approval process in the
United States and other countries. This regulatory process, which includes
preclinical studies and clinical trials, and may include post-marketing
surveillance of each compound to establish its safety and efficacy, can take
many years and require the expenditure of substantial resources. Data obtained
from preclinical studies and clinical trials are subject to varying
interpretations that could delay, limit or prevent regulatory approval. Delays
or rejections may also be encountered based upon changes in FDA policies for
drug approval during the period of product development and FDA regulatory
review. Similar delays may also be encountered in obtaining regulatory
approval in foreign countries. Delays in obtaining regulatory approvals could
adversely affect the marketing of any drugs developed by the Company or its
corporate collaborators, impose costly procedures upon the Company's or its
corporate collaborators' activities, diminish any competitive advantages that
the Company or its corporate collaborators may attain and adversely affect the
Company's receipt of royalties. There can be no assurance that regulatory
approval will be obtained for products developed by the Company or its
corporate collaborators. Furthermore, regulatory approval may entail
limitations on the indicated uses of a proposed product. Because certain of
the Company's product candidates involve the application of new technologies
and may be based upon a new therapeutic approach, such products may be subject
to substantial additional review by various government regulatory authorities,
and, as a result, regulatory approvals may be obtained more slowly than for
products based upon more conventional technologies. The Company's product
candidates may require a delivery device and such product and device may be
subject to separate regulatory review, which could also delay regulatory
approval.
The Company believes that the commercial uses of its products will be
regulated as biologics by the FDA and comparable regulatory bodies of other
countries. Gene therapy is, however, a relatively new technology, and the
regulatory requirements governing gene therapy products are uncertain. This
uncertainty may result in excessive costs or extensive delays in the
regulatory approval process, adding to the already lengthy review process for
human therapeutic products in general. The Company is not aware of any gene
therapy products that have received marketing approval from the FDA or any
comparable regulatory body of any other country. The regulation of the
Company's products and its ongoing research is subject to change, and future
legislative or administrative acts in the United States or other countries
could have a material adverse effect on the Company's business, financial
condition and results of operations. Regulatory requirements ultimately
imposed could adversely affect the ability of the Company's corporate
collaborators to clinically test, manufacture or market products, and could
significantly delay or reduce the milestone or royalty payments payable to the
Company.
Even if regulatory approval is obtained, a marketed product and its
manufacturer are subject to continuing review. Discovery of previously unknown
problems with a product may result in withdrawal of the product from the
market, and could have a material adverse effect on the Company's business,
financial condition and results of operations. Violations of regulatory
requirements at any stage during the regulatory process, including preclinical
studies and clinical trials, the approval process, post-approval or in good
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manufacturing practices ("GMP"), may result in various adverse consequences to
the Company, including the FDA's delay in approval or refusal to approve a
product, withdrawal of an approved product from the market or the imposition
of criminal penalties against the manufacturer and license holder. There can
be no assurance that the Company or its corporate collaborators will be able
to conduct clinical testing or obtain necessary approvals from the FDA or
other regulatory authorities for any products. Further, the terms of approval
of any marketing application, including the labeling content, may be more
restrictive than the Company desires and could affect the marketability of the
Company's proposed products. Failure to obtain required governmental approvals
will delay or preclude the Company or its corporate collaborators from
marketing products or limit the commercial use of such products and could have
a material adverse effect on the Company's business, financial condition and
results of operations. See "Business--Government Regulation."
UNCERTAINTY RELATED TO PRICING AND REIMBURSEMENT
In both domestic and foreign markets, sales of the Company's product
candidates will depend in part upon the availability of reimbursement from
third-party payers, such as government health administration authorities,
managed care providers, private health insurers and other organizations. In
addition, other third-party payers are increasingly challenging the price and
cost effectiveness of medical products and services. Significant uncertainty
exists as to the reimbursement status of newly approved health care products.
In many major markets outside the United States, pricing approval is required
before sales can commence. There can be no assurance as to what price can be
obtained or whether government-approved prices, once established, may not be
reduced in subsequent years. There can be no assurance that the Company's
product candidates 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. Legislation and regulations affecting pricing of medical
products may change before the Company's product candidates are approved for
marketing. Adoption of such legislation could further limit reimbursement for
medical products. If adequate coverage and reimbursement levels are not
provided by the government and third-party payers for the Company's potential
products, the market acceptance of these products would be adversely affected,
which would have a material adverse effect on the Company's business,
financial condition and results of operations.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's quarterly operating results may fluctuate significantly as a
result of a variety of factors, including variations in payments received or
made by the Company under strategic alliances, which include milestone
payments, royalties, license fees and other revenues, changes in the research
and development budgets of the Company's corporate collaborators and any
potential collaborators, adoption of new technologies, manufacturing
results, regulatory actions, changes in the demand for the Company's product,
the timing of new product introductions, if any, and the introduction of new
products by the Company's competitors and other competitive factors. If
revenue in a particular period does not meet expectations, the Company may not
be able to adjust significantly its level of expenditures in such period,
which would have an adverse effect on the Company's operating results. The
Company believes that quarterly comparisons of its financial results will not
necessarily be a meaningful indication of future performance. Given these
factors, in some future quarter or quarters the Company's operating results
may be below the expectations of public market analysts and investors. In such
event, the price of the Company's Common Stock could be materially and
adversely affected.
RISKS ASSOCIATED WITH HAZARDOUS MATERIALS
The Company's research and development activities involve the controlled use
of certain biological and other hazardous materials, chemicals and various
radioactive materials. The Company is subject to federal, state and local laws
and regulations governing the use, storage, handling and disposal of such
materials and certain waste products. Although the Company believes that its
safety procedures for handling and disposing of such materials comply with the
standards prescribed by federal, state and local laws and regulations, the
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risk of accidental contamination or injury from these materials cannot be
completely eliminated. In the event of such an accident, the Company could be
held liable for any damages that result, and any liability could exceed the
resources of the Company and could have a material adverse effect on the
Company's business, financial condition and results of operations.
PRODUCT LIABILITY EXPOSURE
Clinical trials, manufacturing, marketing and sale of any of the potential
products of the Company or its corporate collaborators may expose the Company
to liability claims from the use of such products. Such risks exist even with
respect to products that are manufactured in licensed and regulated facilities
or that otherwise possess regulatory approval for commercial sale. Product
liability insurance coverage is expensive, difficult to obtain and may not be
available in the future on acceptable terms, if at all. There can be no
assurance that the Company or its corporate collaborators will be able to
obtain such insurance for commercial or other applications or, if obtained,
that sufficient coverage can be acquired at a reasonable cost. The inability
to obtain sufficient insurance coverage at an acceptable cost or to otherwise
protect against potential product liability claims could prevent or inhibit
the commercialization of pharmaceutical products developed by the Company or
its corporate collaborators. A product liability claim or recall would have a
material adverse effect on the Company's business, financial condition and
results of operations.
CONTROL BY MANAGEMENT AND EXISTING STOCKHOLDERS
Upon completion of this offering, the Company's executive officers,
directors and affiliated individuals and entities together will beneficially
own approximately 50.5% of the outstanding shares of Common Stock (48.7% if
the Underwriters' over-allotment option is exercised in full). As a result,
these stockholders, acting together, will be able to exert significant
influence over most matters requiring approval by the stockholders of the
Company, including approvals of amendments to the Company's Certificate of
Incorporation, mergers, a sale of all or substantially all of the assets of
the Company, going private transactions and other fundamental transactions. In
addition, the Company's Certificate of Incorporation, as it is proposed to be
amended and restated concurrently with the closing of this offering (the
"Restated Certificate"), does not provide for cumulative voting with respect
to the election of directors. Consequently, the present executive officers,
directors and affiliated individuals and entities will be able to influence
significantly the election of the members of the Board of Directors of the
Company. Such a concentration of ownership could affect the liquidity of the
Company's Common Stock and have an adverse effect on the price of the Common
Stock, and may have the effect of delaying or preventing a change in control
of the Company, including transactions in which stockholders might otherwise
receive a premium for their shares over then current market prices. See
"Principal Stockholders" and "Description of Capital Stock."
NO PRIOR PUBLIC MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active public market for the
Common Stock will develop or be sustained after this offering or that the
market price of the Common Stock will not decline below the initial public
offering price. The initial public offering price will be determined by
negotiations between the Company and the Underwriters and is not necessarily
indicative of the market price at which the Common Stock of the Company will
trade after this offering. See "Underwriting" for a discussion of the factors
to be considered in determining the initial public offering price.
The market prices for securities of biotechnology and pharmaceutical
companies have been highly volatile, and the market has experienced
significant price and volume fluctuations that are often unrelated to the
operating performance of particular companies. Announcements of technological
innovations or new commercial products by the Company or its competitors,
disputes or other developments concerning proprietary rights, including
patents and litigation matters, developments concerning strategic alliance
agreements, publicity regarding actual or potential results with respect to
products or technology under
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development by the Company, its corporate collaborators or its competitors,
regulatory developments in both the United States and foreign countries,
public concern as to the efficacy of new technologies, quarterly fluctuations
in the Company's operating results, future sales of substantial amounts of
Common Stock by existing stockholders and comments by securities analysts, as
well as general market conditions and other factors, may have a significant
impact on the market price of the Common Stock. In particular, the realization
of any of the risks described in these "Risk Factors" could have a material
adverse impact on such market price.
ANTI-TAKEOVER PROVISIONS
The Restated Certificate authorizes the Board of Directors of the Company,
without stockholder approval, to issue additional shares of Common Stock and
to fix the rights, preferences and privileges of and issue additional shares
of Preferred Stock with voting, conversion, dividend and other rights and
preferences that could adversely affect the voting power or other rights of
the holders of Common Stock. The issuance of Preferred Stock, rights to
purchase Preferred Stock or additional shares of Common Stock may have the
effect of delaying or preventing a change in control of the Company. In
addition, the possible issuance of Preferred Stock or additional shares of
Common Stock could discourage a proxy contest, make more difficult the
acquisition of a substantial block of the Company's Common Stock or limit the
price that investors might be willing to pay for shares of the Company's
Common Stock. Further, the Restated Certificate provides that any action
required or permitted to be taken by stockholders of the Company must be
effected at a duly called annual or special meeting of stockholders and may
not be effected by written consent. Special meetings of the stockholders of
the Company may be called only by the Board of Directors, by the President of
the Company or by stockholders holding a majority of the shares outstanding
and entitled to vote. These and other provisions contained in the Restated
Certificate and the Company's Amended and Restated Bylaws, as well as certain
provisions of Delaware law, could delay or make more difficult certain types
of transactions involving an actual or potential change in control of the
Company or its management (including transactions in which stockholders might
otherwise receive a premium for their shares over then current market prices)
and may limit the ability of stockholders to remove current management of the
Company or approve transactions that stockholders may deem to be in their best
interests and, therefore, could adversely affect the price of the Company's
Common Stock. See "Description of Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE AND POTENTIAL ADVERSE EFFECT ON MARKET PRICE
Future sales of Common Stock in the public market following this offering
could adversely affect the market price of the Common Stock. Upon completion
of this offering, the Company will have 9,857,784 shares of Common Stock
outstanding, assuming no exercise of currently outstanding options or
warrants. Of these shares, the 2,500,000 shares sold in this offering (plus
any additional shares sold upon exercise of the Underwriters' over-allotment
option) will be freely transferable without restriction under the Securities
Act of 1933, as amended (the "Securities Act"), unless they are held by
"affiliates" of the Company as that term is used under the Securities Act and
the regulations promulgated thereunder. The remaining 7,357,784 shares of
Common Stock held by existing stockholders are "restricted securities" as that
term is defined in Rule 144 of the Securities Act (the "Restricted Shares").
Restricted Shares may be sold in the public market only if registered or if
they qualify for an exemption from registration under Rule 144 or Rule 701
under the Securities Act. As a result of contractual restrictions and the
provisions of Rules 144 and 701, additional shares will be available for sale
in the public market as follows: (i) 49,748 Restricted Shares will be eligible
for immediate sale on the date of this Prospectus; (ii) 76,658 Restricted
Shares will be eligible for sale 90 days after the date of this Prospectus and
(iii) 7,231,378 Restricted Shares will be eligible for sale 180 days from the
date of this Prospectus upon expiration of their respective holding periods
under Rule 144. In addition, 10,751 shares will be eligible for immediate sale
on the date of this Prospectus upon exercise of vested stock options, and
765,639 shares will be issuable upon exercise of vested stock options 180 days
after the effective date of this offering upon the expiration of lock-up
agreements.
16
<PAGE>
The holders of 6,375,891 shares of Common Stock and the holders of warrants
to purchase 211,864 shares of Common Stock have the right in certain
circumstances to require the Company to register their shares under the
Securities Act for resale to the public beginning 180 days from the date of
this Prospectus. If such holders, by exercising their demand registration
rights, cause a large number of shares to be registered and sold in the public
market, such sales could have an adverse effect on the market price for the
Company's Common Stock. If the Company were required to include in a Company-
initiated registration shares held by such holders and holders of an
additional 505,809 shares of Common Stock pursuant to the exercise of their
piggyback registration rights, such sales may have an adverse effect on the
Company's ability to raise needed capital. In addition, the Company expects to
file a registration statement on Form S-8 registering a total of 2,326,218
shares of Common Stock subject to outstanding stock options or reserved for
issuance under the Company's equity incentive plans. Such registration
statement is expected to be filed and to become effective 180 days after the
effective date of this offering. Shares registered under such registration
statement will, subject to Rule 144 volume limitations applicable to
affiliates, be available for sale in the open market, unless such shares are
subject to vesting restrictions with the Company or the lock-up agreements
described above.
DILUTION; ABSENCE OF CASH DIVIDENDS
Purchasers of the shares of Common Stock offered hereby will experience
immediate and substantial dilution in the net tangible book value of their
investment from the initial public offering price. Additional dilution will
occur upon exercise of outstanding options and warrants. The Company has never
paid any dividends and does not anticipate paying dividends in the foreseeable
future. See "Dilution," "Dividend Policy" and "Shares Eligible for Future
Sale."
YEAR 2000 COMPLIANCE
The Company uses a number of computer software programs and operating
systems in its internal operations, including applications used in financial
business systems and various administration functions. To the extent that
these software applications, and the software applications of the Company's
vendors, suppliers, financial institutions and service providers, contain
source code that is unable to appropriately interpret the upcoming calendar
year "2000," some level of modification or even possibly replacement of such
source code or applications will be necessary. The Company is in the process
of identifying the software applications that are not "Year 2000" compliant
and it will be communicating with its vendors, suppliers, financial
institutions and service providers regarding their "Year 2000" compliance.
There can be no assurance that the costs necessary to update software or
potential systems interruptions would not have a material adverse effect on
the Company's business, financial condition and results of operations.
17
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of 2,500,000 shares of Common
Stock offered by the Company hereby at an assumed initial public offering
price of $12.00 per share, after deducting the estimated underwriting
discounts and commissions and offering expenses payable by the Company are
estimated to be approximately $27.0 million ($31.2 million if the
Underwriters' over-allotment option is exercised in full).
The Company intends to use the net proceeds from this offering and the sale
of shares to Warner-Lambert to expand laboratories, office and manufacturing
facilities and to purchase equipment (approximately $10.0 million), and to use
the remainder to fund its research and development activities, including the
therapeutic angiogenesis, vascular damage, oncology and neurology programs,
and for general corporate purposes. The Company's management will retain broad
discretion over the allocation of the net proceeds. The Company may also use a
portion of the net proceeds to fund acquisitions of complementary
technologies, products or businesses, although the Company has no current
agreements or commitments for any such acquisitions. Pending such uses, the
Company intends to invest the net proceeds of this offering in short-term,
interest-bearing, investment-grade securities.
The amounts actually expended for each purpose may vary significantly
depending upon numerous factors, including progress of the Company's product
programs, the number and breadth of these programs, future revenue growth, if
any, achievement of milestones under corporate collaborations and licensing
arrangements, the ability of the Company to establish and maintain corporate
collaborations and other arrangements, the progress of the development efforts
of the Company's corporate collaborators and the amount of cash, if any,
generated by the Company's operations. Such factors also include the pace and
amount of any acquisitions or investments, and competing technological and
market developments that make the Company's technologies relatively less
attractive to corporate collaborators.
The Company believes that its existing capital resources, together with the
net proceeds from this offering, interest income and future payments due under
its existing corporate collaborations, will be sufficient to satisfy its
current and projected funding requirements at least through 1999. See
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations--Liquidity and Resources" and "Risk Factors--History of Operating
Losses; Future Capital Requirements."
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on its capital stock
since its inception and does not anticipate paying any cash dividends in the
foreseeable future. The Company currently intends to retain any future
earnings to fund the development of its business.
18
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1998, and as adjusted to reflect (i) the proposed Reverse Split; (ii) the
conversion of all outstanding shares of Preferred Stock into 6,042,263 shares
of Common Stock upon the closing of this offering; (iii) the sale of 2,500,000
shares of Common Stock offered hereby at an assumed initial public offering
price of $12.00 per share and (iv) the sale of 333,333 shares of Common Stock
to Warner-Lambert at an assumed price of $15.00 per share, and the application
of the estimated net proceeds therefrom:
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------------
ACTUAL (1)(2) AS ADJUSTED (3)
------------- ---------------
(in thousands)
<S> <C> <C>
Current portion of capital leases................ $ 131 $ 131
======== ========
Long-term capital leases less current portion.... $ 26 $ 26
Stockholders' equity: (2)(3)
Convertible Preferred Stock, $0.001 par value;
6,365,785 shares authorized, 6,042,263 shares
issued and outstanding, actual; 6,365,785
shares authorized, none issued and
outstanding, as adjusted...................... 6 --
Preferred Stock, $0.001 par value; no shares
authorized, issued and outstanding at December
31, 1996 and 1997 and March 31, 1998,
(5,000,000 shares authorized, no shares issued
and outstanding)..............................
Common Stock, $0.001 par value; 9,553,191
shares authorized,
1,029,488 shares issued and outstanding,
actual; 50,000,000 shares authorized,
9,857,784 shares issued and outstanding, as
adjusted...................................... 1 10
Additional paid-in capital..................... 37,521 69,518
Accumulated deficit............................ (28,889) (28,889)
Treasury stock, at cost, 47,300 common shares.. -- --
-------- --------
Total stockholders' equity................... 8,639 40,639
-------- --------
Total capitalization....................... $ 8,796 $ 40,796
======== ========
</TABLE>
- --------
(1) Excludes: (i) 1,105,955 shares of Common Stock issuable upon exercise of
outstanding stock options as of March 31, 1998, at a weighted average
exercise price of $1.95 per share and (ii) 320,416 shares of Common Stock
issuable upon exercise of outstanding warrants, at a weighted average
exercise price of $12.65 per share. See "Management--Equity Incentive
Plans," "Description of Capital Stock--Warrants" and Note 7 of Notes to
Financial Statements.
(2) See the Financial Statements and Note 7 of Notes to Financial Statements
for descriptions of the authorized, issued and outstanding shares,
liquidation preferences and conversion features of the individual classes
of Preferred Stock.
(3) As adjusted to give effect to (i) the conversion of all issued and
outstanding shares of Preferred Stock into 6,042,263 shares of Common
Stock upon the completion of this offering; (ii) the sale of 2,500,000
shares of Common Stock offered hereby at the assumed initial public
offering price of $12.00 per share and (iii) the sale of 333,333 shares of
Common Stock to Warner-Lambert at an assumed price of $15.00 per share.
See "Use of Proceeds."
19
<PAGE>
DILUTION
The pro forma unaudited net tangible book value of the Company as of March
31, 1998, was $8,639,099 or $1.23 per share of Common Stock. The pro forma net
tangible book value per share represents the amount of the Company's total
tangible assets less total liabilities, divided by the number of shares of
Common Stock outstanding after giving effect to the proposed Reverse Split and
the conversion of all outstanding shares of Preferred Stock into Common Stock.
Pro forma net tangible book value dilution per share represents the
difference between the amount per share paid by purchasers of shares of Common
Stock in this offering and the net tangible book value per share of the Common
Stock immediately after completion of this offering. After giving effect to
the sale by the Company of 2,500,000 shares of Common Stock offered hereby at
an assumed initial public offering price of $12.00 per share and after
deducting estimated underwriting discounts and commissions and offering
expenses payable by the Company, without giving effect to the sale of $5.0
million of Common Stock to Warner-Lambert and assuming no other changes in the
net tangible book value after March 31, 1998, the Company's pro forma net
tangible book value as of March 31, 1998, would have been $35,639,099 or $3.74
per share. This represents an immediate increase in pro forma net tangible
book value of $2.51 per share to existing stockholders and an immediate
dilution in pro forma net tangible book value of $8.26 per share to new
purchasers of Common Stock in this offering, as illustrated by the following
table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $12.00
Pro forma net tangible book value per share as of March 31,
1998....................................................... $1.23
Increase attributable to new investors...................... 2.51
-----
Pro forma net tangible book value per share after the offering
as of March 31, 1998......................................... 3.74
------
Dilution per share to new investors........................... $ 8.26
======
</TABLE>
The following table sets forth on a pro forma basis, as of March 31, 1998,
the difference between the number of shares of Common Stock purchased from the
Company, the total consideration paid and the average price per share paid by
the existing holders of Common Stock and by the new investors, before
deducting the estimated underwriter discounts and commissions and offering
expenses payable by the Company:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders
(1).................... 7,024,451 73.8% $34,881,824 53.8% $ 4.97
New investors........... 2,500,000 26.2% $30,000,000 46.2% $12.00
--------- ------ ----------- ------
Total................. 9,524,451 100.0% $64,881,824 100.0%
========= ====== =========== ======
</TABLE>
- --------
(1) Gives effect to the conversion of all outstanding shares of Preferred
Stock into 6,042,263 shares of Common Stock upon the closing of this
offering.
The calculation of net tangible book value and other computations above
assume no exercise of outstanding options and warrants and does not give
effect to the sale of $5.0 million of Common Stock to Warner-Lambert. As of
March 31, 1998, 1,426,371 shares of Common Stock were subject to outstanding
options and warrants at a weighted average price of $4.36 per share. To the
extent additional shares are purchased pursuant to the exercise of outstanding
options and warrants, there will be further dilution to new investors. See
"Management--Equity Incentive Plans," "Description of Capital Stock--
Warrants" and Note 7 of Notes to Financial Statements.
20
<PAGE>
SELECTED FINANCIAL DATA
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 the Prospectus. The statement of operations data for the years
ended December 31, 1995, 1996 and 1997, and the balance sheet data at December
31, 1996 and 1997, are derived from the financial statements of the Company
included elsewhere in this Prospectus which have been audited by KPMG Peat
Marwick LLP, independent auditors, whose report thereon is included elsewhere
in this Prospectus. The statement of operations data for the years ended
December 31, 1993 and 1994, and the balance sheet data as of December 31,
1993, 1994 and 1995, are derived from financial statements audited by KPMG
Peat Marwick LLP, which are not included herein. Financial data as of March
31, 1998, and for the three month periods ended March 31, 1997 and 1998, are
derived from unaudited financial statements included elsewhere herein, and, in
the opinion of management, include all adjustments, consisting only of normal
recurring adjustments, that the Company considers necessary for a fair
presentation of its financial position and results of operations for such
periods. The results for the interim periods are not necessarily indicative of
results to be expected for any future period. The Company has not declared or
paid cash dividends on its Common Stock since inception and does not intend to
pay any cash dividends in the foreseeable future.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997 1998
------- -------- -------- -------- -------- ----------- -------
(unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues............... $ 750 $ 1,000 $ 1,005 $ 698 $ 10,188 $ -- $ 3,688
Expenses:
Research and
development........... 2,888 5,646 6,500 6,355 8,986 1,614 3,093
General and
administrative........ 1,040 1,605 2,025 2,947 2,720 550 739
Purchase of in-process
technology............ -- 2,581 442 -- -- -- --
------- -------- -------- -------- -------- -------- -------
Total Expenses........ 3,928 9,832 8,967 9,302 11,706 2,164 3,832
------- -------- -------- -------- -------- -------- -------
Loss from operations... (3,178) (8,832) (7,962) (8,604) (1,518) (2,164) (144)
Other income, net...... 136 139 413 496 263 74 115
------- -------- -------- -------- -------- -------- -------
Net loss............... $(3,042) $ (8,693) $ (7,549) $ (8,108) $ (1,255) $ (2,090) $ (29)
======= ======== ======== ======== ======== ======== =======
Pro forma basic net
loss per share (1).... $ (0.18) $ (0.01)
======== =======
Shares used in
computing basic
net loss per share
(1)................... 6,999 7,019
<CAPTION>
DECEMBER 31, MARCH 31,
----------------------------------------------- -----------
1993 1994 1995 1996 1997 1998
------- -------- -------- -------- -------- -----------
(unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents and short-
term investments...... $ 6,040 $ 9,037 $ 13,880 $ 7,725 $ 9,364 $ 7,262
Total assets........... 6,738 9,965 15,226 8,638 10,547 10,692
Capital lease
obligations (2)....... -- 799 889 572 221 158
Accumulated deficit.... (3,254) (11,947) (19,496) (27,605) (28,860) (28,889)
Total stockholders'
equity................ 6,107 8,483 13,691 6,864 8,644 8,639
</TABLE>
- --------
(1) See Note 2 of Notes to Financial Statements for a description of the
computation of the pro forma basic net loss per share.
(2) Includes current portion.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements that involve
risks and uncertainties. Actual events and results could differ materially
from those anticipated in these forward-looking statements as a result of
various factors, including those set forth under "Risk Factors" and elsewhere
in this Prospectus.
OVERVIEW
GenVec was incorporated under the laws of the state of Delaware on December
7, 1992. GenVec focuses on the development and commercialization of novel gene
therapy products for major disease markets. GenVec's lead product candidate,
BIOBYPASS angiogen, is currently in Phase I/II clinical trials for the
treatment of CAD. GenVec also intends to initiate a Phase I/II clinical trial
in patients with PVD in May 1998. The Company is developing BIOBYPASS angiogen
as part of its collaboration with Warner-Lambert, under which the Company
could receive payments totaling over $100 million in milestone payments,
research funding, equity purchases and technology access fees, upon the
achievement of specified milestones. As of April 20, 1998, Warner-Lambert had
paid to the Company $13.5 million under this collaboration. The Company is
also pursuing research and development programs in the areas of vascular
damage, oncology and neurology. GenVec has also entered into corporate
collaborations with Varian and Fuso in certain areas of oncology. See
"Business--Strategic Alliances--Corporate Collaborations."
The Company has incurred operating losses each year since inception and, as
of March 31, 1998, had an accumulated deficit of approximately $28.9 million.
The Company's losses have resulted principally from costs incurred in research
and development and from general and administrative costs associated with the
Company's operations. The Company expects to incur substantial additional
operating losses for at least the next few years as a result of increases in
its expenses for research and development capabilities.
The Company's future profitability will depend in part on the successful
development and marketing of its BIOBYPASS angiogen and other products, and
the continued establishment of corporate collaborations. Payments from
corporate collaborators and interest income are expected to be the Company's
only sources of revenue for several years. These payments will include
licensing payments, milestone payments and research and development funding.
Milestone payments under strategic alliances will be subject to significant
fluctuation in both timing and amount, and therefore the Company's results of
operations for any period may not be comparable to the results of operations
for any other period. Royalties or other revenues from commercial sales of
products are not expected for at least several years, if at all. If revenues
in a particular period do not meet expectations, the Company may not be able
to adjust significantly its level of expenditures in such period, which would
have an adverse effect on the Company's operating results. The Company
believes that quarterly comparisons of its financial results will not
necessarily be a meaningful indication of future performance.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1998 and March 31, 1997
Revenues
Revenues were approximately $3.7 million for the three months ended March
31, 1998. For the same period in 1997, the Company received no revenues.
Revenues for the three month period in 1998 were attributable primarily to the
Company's collaboration agreement with Warner-Lambert and to a lesser extent,
the Company's research and development agreement with Fuso. Such revenues
included a $2.0 million milestone payment from Warner-Lambert as a result of
the Company's investigational new drug application ("IND") filing with the FDA
for PVD.
22
<PAGE>
Operating Expenses
Research and development expenses were approximately $3.1 million and $1.6
million for the three months ended March 31, 1998 and 1997, respectively.
Research and development expenses increased approximately 92% primarily as a
result of the Company's therapeutic angiogenesis product development
activities, including license payments, increased intellectual property legal
expenses in connection with patent filings and expenses related to the Phase
I/II trial for CAD.
General and administrative expenses were approximately $739,000 and $550,000
for the three months ended March 31, 1998 and 1997, respectively. The 34%
increase was primarily attributable to increased payroll and personnel in
support of the Company's collaboration agreements.
Other Income
Other income, consisting primarily of interest income, net of interest
expense, was approximately $115,000 and $74,000 for the three months ended
March 31, 1998 and 1997, respectively. The 54% growth in other income was due
to an increase in the Company's cash balances during this period.
As of March 31, 1998, the Company had an accumulated deficit of $28.9
million, and had carried an accumulated deficit since inception, and therefore
had not paid any federal income taxes. Realization of deferred tax assets is
dependent on future earnings, if any, the timing and amount of which is
uncertain. See Note 8 of Notes to Financial Statements.
Years Ended December 31, 1997 and 1996
Revenues
Revenues were approximately $10.2 million and $698,000 in 1997 and 1996,
respectively. Revenues in 1997 were attributable primarily to the Company's
collaboration agreement with Warner-Lambert and to a lesser extent, the
Company's research and development agreement with Fuso. Revenues in 1996 were
attributable to research and development funding from other sources.
Operating Expenses
Research and development expenses were approximately $9.0 million and $6.4
million in 1997 and 1996, respectively. Research and development expenses
increased 41.4% from 1996 to 1997 primarily as a result of the Company's
therapeutic angiogenesis product development activities, including license
payments, as well as increased intellectual property legal costs in connection
with patent filings and acquisitions of technology, increased payments for
sponsored research and outside consultants, and increased facility costs due
to the expansion of research and development facilities. The Company expects
research and development expenses to increase as the Company continues to
expand its product development programs.
General and administrative expenses were approximately $2.7 million and $2.9
million in 1997 and 1996, respectively. The 7.7% decrease from 1996 to 1997
was primarily attributable to the one-time expense associated with a
termination agreement in 1996 with a former officer of the Company. The
Company expects that general and administrative expenses will increase
slightly in 1998 due to increased personnel in late 1997 and anticipated
administrative hiring in 1998, potentially including a Chief Financial
Officer.
Other Income
Other income, consisting primarily of interest income, net of interest
expense, was approximately $263,000 and $496,000 in 1997 and 1996,
respectively. The 47.0% decrease from 1996 to 1997 was due to variations in
the Company's cash balances during this period.
Years ended December 31, 1996 and 1995
Revenues
Revenues were approximately $698,000 and $1.0 million in 1996 and 1995,
respectively. Revenues in 1996 and 1995 were attributable to research and
development funding.
23
<PAGE>
Operating Expenses
Research and development expenses were approximately $6.4 million and $6.5
million in 1996 and 1995, respectively. Research and development expenses for
1995 and 1996 remained essentially flat as the Company shifted its research
and development efforts to therapeutic angiogenesis product opportunities.
General and administrative expenses were approximately $2.9 million and $2.0
million in 1996 and 1995, respectively. The 45.5% increase from 1995 to 1996
was primarily attributable to increased payroll, personnel and professional
fees in connection with the expansion of the Company's business development
efforts and operations, as well as a one-time expense of $270,000 in
connection with the termination agreement in September 1996 with a former
officer of the Company.
The in-process technology expense of approximately $442,000 in 1995 was a
partial charge resulting from the issuance of capital stock in connection with
the acquisition of Theragen, Inc. in 1994. See Note 4 of Notes to Financial
Statements.
Other Income
Other income, consisting primarily of interest income, net of interest
expense, was approximately $496,000 and $413,000 in 1996 and 1995,
respectively. The 20.1% increase from 1995 to 1996 was due to variations in
the Company's cash balances during the period as a result of the private
placement of equity securities in late 1994 and 1995.
LIQUIDITY AND CAPITAL RESOURCES
From inception through March 31, 1998, the Company financed its operations
through the private placement of equity securities, payments from corporate
collaborators and capital leases. As of March 31, 1998, the Company had
received aggregate gross proceeds of approximately $34.5 million through the
private placement of equity securities, approximately $17.3 million in
research and development funding and milestone payments from corporate
collaborators and approximately $1.4 million of equipment capital lease
financing. As of March 31, 1998, the Company had approximately $7.3 million in
cash and cash equivalents and short-term investments.
Net cash used in operating activities was approximately $484,000, $6.9
million and $6.9 million in 1997, 1996 and 1995, respectively. The decrease in
1997 resulted from research and milestone revenue received from the Warner-
Lambert collaboration. Expenditures for acquisition of property and equipment
were approximately $476,000, $86,000 and $235,000 in 1997, 1996 and 1995,
respectively. The decrease in 1996 took place during the Company's shift in
research focus to therapeutic angiogenesis, while the increase in late 1997
was in connection with the Warner-Lambert collaboration. Cash flow from
financing activities was approximately $2.6 million, $860,000 and $12.0
million in 1997, 1996 and 1995, respectively. Financing cash flows related to
private equity financing in 1995 and equity purchases in connection with
license and corporate collaboration agreements in 1996 and 1997, offset by
payments under capital equipment lease obligations.
The Company anticipates that annual expenditures for research and
development, clinical trials, product development, preclinical studies and
general and administrative activities will increase significantly in future
years. However, the Company's actual capital requirements may change depending
on numerous factors, including, without limitation, the progress of the
Company's research and development programs, the scope and results of
preclinical and clinical studies, the number and nature of the indications the
Company pursues in clinical studies, the timing of regulatory approvals,
technological advances, shifts in the Company's product development efforts
and the status of competitive products. In addition, expenditures may be
dependent on the establishment and maintenance of collaboration relationships
with other companies, the availability of financing and other factors.
The Company believes that the net proceeds from this offering and the sale
of shares to Warner-Lambert, existing cash and short-term investments and
anticipated cash flow from its current corporate
24
<PAGE>
collaborators will be sufficient to support the Company's operations at least
through 1999. The Company expects that it will require significant additional
financing in the future, which it may seek to raise through public or private
equity offerings, debt financing, additional strategic alliance and licensing
arrangements or some combination of these financing alternatives. No assurance
can be given that any such additional financing will be available when needed,
if at all, or that it will be obtained on terms favorable to the Company or
its stockholders. To the extent that the Company raises additional capital by
issuing equity or convertible securities, ownership dilution to stockholders
will result. If adequate financing is not available when needed, the Company
may be required to curtail significantly one or more of its research and
development programs or to obtain funds through agreements with corporate
collaborators or others that may require the Company to relinquish rights to
certain of its technologies or potential products, or to grant licenses on
terms that are not favorable to the Company, any of which could have a
material adverse effect on the Company's financial condition and results of
operations.
The Company uses a number of computer software programs and operating
systems in its internal operations, including applications used in financial
business systems and various administration functions. To the extent that
these software applications, and the software applications of the Company's
vendors, suppliers, financial institutions and service providers, contain
source code that is unable to appropriately interpret the upcoming calendar
year "2000," some level of modification or even possibly replacement of such
source code or applications will be necessary. The Company is in the process
of identifying the software applications that are not "Year 2000" compliant
and it will be communicating with its vendors, suppliers, financial
institutions and service providers regarding their "Year 2000" compliance.
Given the information known at this time about the Company's systems, coupled
with the Company's ongoing efforts to upgrade or replace business critical
systems as necessary, it is currently not anticipated that these "Year 2000"
costs will have a material adverse impact on the Company's business, financial
condition and results of operations. However, the Company is still analyzing
its software applications and, to the extent they are not fully "Year 2000"
compliant, there can be no assurance that the costs necessary to update
software or potential systems interruptions would not have a material adverse
effect on the Company's business, financial condition and results of
operations.
25
<PAGE>
BUSINESS
The following Business section contains forward-looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under "Risk Factors" and
elsewhere in this Prospectus.
OVERVIEW
GenVec focuses on the development and commercialization of novel gene
therapy products for major disease markets. GenVec's lead product candidate,
BIOBYPASS angiogen, is designed to induce angiogenesis, or new blood vessel
formation, in tissues with inadequate blood flow. BIOBYPASS angiogen uses an
adenovirus vector to deliver and express the gene for VEGF/121/. BIOBYPASS
angiogen is being developed for the treatment of CAD and PVD, and is intended
to be used either alone or as an adjunct to existing surgical procedures. In
December 1997, the Company initiated a Phase I/II clinical trial with its
BIOBYPASS angiogen for direct injection into the hearts of patients with CAD
who are undergoing CABG surgery. The Company also intends to commence a Phase
I/II clinical trial in patients with PVD in May 1998. The Company has entered
into a collaboration with Warner-Lambert to develop and commercialize
BIOBYPASS angiogen and other gene therapy products for therapeutic
angiogenesis. Under the terms of the collaboration, Warner-Lambert may pay to
the Company a total of more than $100 million in milestone payments, research
funding, equity purchases and technology access fees, if specified milestones
are achieved. As of April 20, 1998, Warner-Lambert had paid to the Company
$13.5 million under this collaboration, and had purchased $2.0 million of the
Company's stock.
Additionally, GenVec is developing product candidates and vector technology
in the areas of cardiovascular disease, oncology and neurology. For the
treatment of restenosis associated with angioplasty and vascular damage
associated with A-V grafts, GenVec is developing Ad.iNOS, an adenovirus vector
containing the iNOS gene. In oncology, GenVec is developing Ad.TNFa under a
collaboration agreement with Varian. Ad.TNFa, an adenovirus vector containing
the TNFa gene, is designed to enhance the effectiveness of radiation therapy
without increasing toxicity to normal tissue. In collaboration with Fuso,
GenVec is developing Ad.CD and is conducting research on immunotherapy of
cancer based on the delivery of tumor antigen genes. Ad.CD, an adenovirus
vector containing the CD gene, is designed to convert a nontoxic precursor
drug into fluorouracil to effect tumor destruction, either alone or in
combination with radiation therapy. In neurology, GenVec intends to develop
product candidates through the application of its HSV vector technology.
To customize gene therapy products for specific medical needs, GenVec is
developing vectors for cell-specific gene delivery and promoters which
regulate the level and duration of gene expression. GenVec's technology
portfolio includes: (i) therapeutic genes such as VEGF/121/, iNOS, TNFa
and CD; (ii) vector systems such as adenovirus and HSV; (iii) receptor
mediated targeting technology and (iv) tissue-specific and inducible
promoters.
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GENVEC STRATEGY
The Company's objective is to be a leader in the development and
commercialization of gene therapy products. To achieve this objective, GenVec
intends to:
. Enhance Leadership in Therapeutic Angiogenesis. GenVec's primary focus is
on the development of its lead product candidate, BIOBYPASS angiogen, for
the treatment of CAD and PVD. The Company also seeks to develop new
therapeutic angiogenesis products in these and other disease indications.
. Expand Its Portfolio of Products under Development. The Company intends
to expand its existing portfolio of product candidates for the treatment
of cardiovascular disease and cancer. The Company will also pursue
product candidates in new therapeutic areas, including neurological
disorders using its HSV vector technology. GenVec focuses its new product
development efforts in areas where gene therapy has potential benefits
over currently available therapies. GenVec takes into account market
attractiveness, technical feasibility, the potential to develop a
proprietary position and the predictiveness of animal models in choosing
among new product development opportunities.
. Broaden Its Technology Platform. The Company plans to broaden its
portfolio of genes, vectors, promoters and other technologies to develop
new products and attract corporate and academic collaborators. GenVec
intends to accomplish this through internal and sponsored research, in-
licensing and technology acquisitions.
. Strengthen Product Development through Corporate Collaborations. GenVec
establishes corporate collaborations to enhance the development,
manufacture and commercialization of its product candidates. The Company
intends to participate in the manufacture and commercialization of select
product opportunities by retaining certain rights in these areas.
. Maintain and Expand Intellectual Property Strength. The Company seeks to
enable and protect its product opportunities by pursuing patents either
alone or with corporate or academic collaborators or by seeking licenses
from third parties. As of March 31, 1998, the Company held or had
licenses to 154 issued, allowed or pending patents worldwide, of which 28
are issued or allowed in the U.S.
GENE THERAPY RATIONALE AND PRODUCT COMPONENTS
Rationale. Gene therapy seeks to treat a broad range of diseases by
intervening at the genetic level to modify the activity of the body's cells.
Gene therapies provide the body's cells with information in the form of
segments of deoxyribonucleic acid ("DNA"). These DNA segments contain sets of
instructions that direct the body's cells to synthesize specific proteins to
perform basic biochemical and physiological functions. Gene therapy, by adding
or modifying DNA in the body's cells, can cause these cells to augment the
production of proteins already being produced by the body or to produce
proteins not currently present in the target tissue. These proteins can either
be secreted or remain within the target cell. The development of gene therapy
is generally focused on diseases where the specific molecular pathways are
well characterized. The goal of many gene therapies is the local production of
a therapeutic protein, potentially resulting in a more efficacious treatment
alternative with fewer side effects than conventional approaches.
Product Components. A gene therapy product requires several key components
in order to produce a therapeutic effect. A specific gene which encodes a
therapeutic protein must be identified. In addition, regulatory sequences of
DNA, including a promoter, are combined with the gene to regulate production
of the therapeutic protein. A gene therapy product also requires delivery of
the specific gene and its regulatory sequences to the target cell. Typically,
the regulatory and therapeutic gene sequences are inserted into a vector that
can bind to the target cell. After binding to the cell surface, the vector is
internalized and transported to the cellular nucleus where the therapeutic
gene is used for protein expression. This overall process is known as
transfection. The residual vector protein is degraded.
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GENVEC PRODUCT DEVELOPMENT PROGRAMS
GenVec's product development activities are focused on diseases that it
believes are well suited for therapeutic intervention using currently
available gene therapy technologies. The Company's current programs focus on
cardiovascular disease, oncology and neurology. The Company's lead product
candidate, BIOBYPASS angiogen, is designed to treat CAD and PVD. BIOBYPASS
angiogen uses an adenovirus vector to deliver the VEGF/121/ gene directly
to tissues with inadequate blood flow to stimulate new blood vessel formation.
GenVec's product development programs are summarized below:
<TABLE>
<CAPTION>
DEVELOPMENT CORPORATE
PRODUCT DEVELOPMENT PROGRAM THERAPEUTIC GENE VECTOR STATUS (1) COLLABORATOR
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CARDIOVASCULAR
Ischemic Tissue Disease
Warner-
CAD (BIOBYPASS angiogen) VEGF/121/ Adenovirus Phase I/II Lambert
Warner-
PVD (BIOBYPASS angiogen) VEGF/121/ Adenovirus Phase I/II Lambert
Vascular Damage
Restenosis iNOS Adenovirus Preclinical --
Arteriovenous Graft iNOS Adenovirus Preclinical --
ONCOLOGY
Radiation Therapy TNF(alpha) Adenovirus Preclinical Varian
Phase
CD Adenovirus I/II (2) Fuso
Immunotherapy -- Adenovirus Research Fuso
Herpes simplex
NEUROLOGY -- virus Research --
</TABLE>
(1) Product candidates in research are in the early stages of development.
During the preclinical stage, laboratory and animal studies are conducted
to evaluate the therapeutic efficacy of a product candidate. Phase I/II
clinical trials are designed to assess the safety and efficacy of a
product candidate in volunteer patients with the targeted disease.
(2) The Company has initiated a Phase I/II trial with Ad.CD in patients with
colorectal cancer metastatic to the liver to assess the safety of Ad.CD.
These trials do not involve radiation. The Company is currently conducting
preclinical trials of Ad.CD used in combination with radiation therapy and
intends to conduct further studies in this area.
Cardiovascular
Ischemic Tissue Disease
Recent estimates indicate that over 55 million Americans have one or more
types of cardiovascular disease. Cardiovascular disease is the leading cause
of death in the United States and many other developed countries. A major
contributing factor to cardiovascular disease is atherosclerosis, or the
hardening of the arteries due to plaque formation. As atherosclerosis
progresses, the blood vessels narrow, and may close entirely. As a result,
ischemia, or inadequate blood flow to tissues, can result and damage the
affected tissue. In patients with CAD, ischemia in the heart can lead to
severe rest pain, impaired cardiac function or, if very severe, heart attacks.
PVD involves ischemia in the extremities and can lead to intermittent pain
("claudication"), and in severe cases, chronic pain while at rest. In some PVD
cases, amputation of a limb may be required.
Coronary Artery Disease. Approximately 50% of deaths attributable to
cardiovascular disease are due to CAD. Treatment alternatives for CAD range
from risk factor modification and exercise programs in patients with limited
disease to major surgical procedures in severe disease. Drug therapy is a
mainstay of treatment
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for CAD and many different pharmacologic agents are available. In patients
with severe disease, surgical intervention such as angioplasty is often used
to open occluded vessels. Angioplasty procedures typically use an inflatable
balloon catheter to physically open a narrowed blood vessel. In 1995, more
than 400,000 patients in the U.S. underwent this procedure. Studies have shown
that within seven months following angioplasty, the artery narrows again, or
undergoes restenosis, 30% to 40% of the time. The procedure is difficult or
impossible to perform on certain patients with multiple vessel disease,
diffuse disease, calcified vessels or vessels that are too small to access.
The average cost of angioplasty in the U.S. was approximately $20,000 in 1995.
Another surgical option for CAD is CABG, the replacement of the diseased
artery with a new vessel. In 1995, approximately 360,000 patients in the U.S.
underwent CABG. During the CABG procedure, a blocked coronary artery is
replaced with a vessel harvested from another location in the body. The
conventional CABG procedure requires cutting through the sternum of the chest
and placing the patient on cardiopulmonary bypass, both of which involve
significant risk of morbidity and mortality. In addition, it is difficult or
impossible to perform CABG on certain patients with diffuse atherosclerotic
disease or severe small vessel disease or patients who have previously
undergone a CABG. The average cost of CABG was approximately $45,000 in 1995.
The Company believes there is a need for products that can provide longer
lasting, improved therapeutic outcomes and reduced morbidity in patients
undergoing surgical procedures. For patients whose blocked arteries cannot be
opened by angioplasty or replaced by CABG, new treatments are necessary.
Peripheral Vascular Disease. Current data suggests approximately one million
Americans suffer from intermittent claudication in their lower extremities, a
key symptom of PVD. Current therapies for PVD are similar to those for CAD.
Treatment options range from risk factor modification and exercise programs
for patients with mild disease, to angioplasty or artery bypass grafting in
patients with severe disease. However, progression of disease and recurrence
of symptoms after these treatments is typical and ongoing medical management
of the underlying disease process is often necessary. In addition, PVD
patients who have diffuse disease, calcified vessels or vessels that are too
small to access tend to be poor candidates for angioplasty or vascular grafts.
A lack of adequate pharmacological therapy further emphasizes the need for new
treatment strategies for PVD.
Rationale for Therapeutic Angiogenesis. GenVec believes that restoring blood
flow to areas of ischemia through angiogenesis, the formation of new blood
vessels, offers one of the most promising therapeutic options for CAD and PVD.
Angiogenesis is the body's natural response to ischemia. It also occurs as a
normal physiological process during periods of tissue growth, such as an
increase in muscle or fat and during the menstrual cycle and pregnancy.
Angiogenesis may also occur in certain pathological conditions either as a
natural response to the underlying disease (as in inflammation, wound healing
and rheumatoid arthritis) or as a contributing factor to disease progression
(as in tumor growth).
The angiogenesis process is well understood, and a number of genes involved
in the process have been identified. It is believed that under ischemic
conditions, expression of these genes leads to the production of growth
factors and other proteins involved in angiogenesis. The endothelial cells
which line blood vessels contain receptors which bind to growth factors.
Binding of the growth factors to these cell surface receptors triggers a
complex series of events, including the replication and migration of
endothelial cells to ischemic sites, as well as their formation into new blood
vessels. However, in ischemic conditions, the growth factor genes often may
not produce sufficient amounts of the corresponding proteins to generate an
adequate number of new blood vessels. A logical therapeutic approach to this
problem is to enhance the body's own response by temporarily providing higher
concentrations of growth factors at the site of disease.
BIOBYPASS Angiogen. GenVec's lead product candidate, BIOBYPASS angiogen, is
intended to induce angiogenesis in tissue with inadequate blood flow.
BIOBYPASS angiogen uses an adenovirus vector to deliver and express the
VEGF/121/ gene, GenVec's proprietary form of the VEGF gene. The Company is
developing BIOBYPASS angiogen to be used alone and as an adjunct to existing
surgical procedures for the treatment of CAD and PVD.
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VEGF is a protein which induces angiogenesis and is an important mediator of
the normal angiogenic response to ischemia. VEGF has a high degree of
specificity for endothelial cells, unlike many other angiogenic factors that
can cause proliferation of additional cell types, such as smooth muscle cells
or fibroblasts. However, VEGF is rapidly cleared from the circulation, making
it difficult to sustain high concentrations of VEGF in the blood. Furthermore,
systemic administration of VEGF can lead to hypotension. In contrast to direct
administration of proteins, gene therapy has the advantage of achieving
localized, sustained production of the therapeutic protein in tissue with
inadequate blood flow. GenVec has accomplished this by administering BIOBYPASS
angiogen directly to the target tissue.
GenVec believes the adenovirus vector is well suited for therapeutic
angiogenesis because it induces expression of VEGF in tissues for about a
week. This period of expression has been shown to cause the formation of new
blood vessels, but does not appear to cause toxicity. In addition, adenovirus
vectors efficiently transfer genes to the heart so only small amounts of the
vector are needed. Adenovirus vectors have been used in many gene therapy
clinical trials and appear to be well tolerated. In the Company's current CAD
clinical trial, BIOBYPASS angiogen is being administered by direct injection
into the heart using a standard syringe. The Company believes that other
delivery modalities, including endocardial catheters and intraarterial
catheters, may be used in the future and is evaluating various delivery
devices that are currently available or in development by third parties.
GenVec and its collaborators have demonstrated the therapeutic potential of
BIOBYPASS angiogen in animal models of CAD and PVD. A pig model of cardiac
ischemia was used to evaluate the effects of BIOBYPASS angiogen in CAD.
Administration of BIOBYPASS angiogen to the heart increased the number of
blood vessels, improved blood flow and restored cardiac contractility to
normal. The parameters used in this preclinical study are the endpoints
typically used to assess improvement in patients with CAD. In a PVD
preclinical model of hind limb ischemia, BIOBYPASS angiogen increased the
number of blood vessels and the amount of blood flow in the ischemic limb.
The Company initiated a Phase I/II clinical trial with BIOBYPASS angiogen in
December 1997, for patients who are undergoing CABG and also have areas of
diffuse CAD that are not amenable to surgical treatment. BIOBYPASS angiogen is
directly injected into the ischemic regions of the heart that are not amenable
to bypass grafts. In April 1998, the FDA approved the Company's IND for a
Phase I/II clinical trial in PVD. The Company intends to initiate this trial
in PVD patients with intermittent claudication and for patients with rest pain
in May 1998.
In July 1997, the Company entered into a collaborative agreement with
Warner-Lambert to develop and commercialize gene therapy products
incorporating the VEGF gene for therapeutic angiogenesis. As part of this
corporate collaboration, Warner-Lambert has primary responsibility for
clinical development and commercialization of BIOBYPASS angiogen and related
VEGF gene therapies. Under the terms of the collaboration, the Company may
receive a total of more than $100 million in milestone payments, research
funding, equity purchases and technology access fees, if specified milestones
are achieved. As of April 20, 1998, Warner-Lambert had paid to the Company an
aggregate of $13.5 million, and had purchased $2.0 million of the Company's
capital stock. See "--Strategic Alliances--Corporate Collaborations--Warner-
Lambert Company."
Vascular Damage
Vascular damage can result from a variety of procedures which mechanically
disturb blood vessel walls. It occurs in several medical conditions, including
restenosis following angioplasty procedures in patients with CAD and PVD, and
the closing ("stenosis") of A-V grafts which are used for vascular access in
patients with renal disease who require dialysis. In these conditions,
vascular damage causes local biological responses such as the proliferation of
smooth muscle cells and the inhibition of endothelial cell layer regrowth,
both of which contribute to vessel narrowing. The local concentration of
nitric oxide, an important regulator of blood vessel function, declines when
there is damage to the endothelial cell layer. Studies suggest that increasing
levels of
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nitric oxide can inhibit smooth muscle cell proliferation and help prevent the
biological processes that lead to narrowing of blood vessels at the site of
damage.
Restenosis Following Angioplasty. Severe cases of CAD and PVD are often
treated by angioplasty. The damage caused by the angioplasty procedure leads
to restenosis in 30% to 40% of patients within seven months of the procedure.
Current techniques to prevent restenosis involve insertion of a stent, a small
metallic scaffold, to prop open the blood vessel at the site of angioplasty.
However, even following stent replacement, 20% to 30% of angioplasty patients
still suffer restenosis within seven months after stent placement. Restenosis
rates of over 50% have been observed for certain high risk patients who have
received a stent. Sales of coronary stents have been estimated to exceed $1.0
billion worldwide in 1997.
Stenosis of Arteriovenous Grafts. In 1995, approximately 700,000 patients
suffered end-stage renal disease worldwide. In the U.S. alone, in 1995 more
than 200,000 patients with end-stage renal disease received dialysis to
cleanse the blood. Dialysis requires long-term, repetitive access to the
patient's vasculature so as to facilitate the insertion of dialysis needles.
The most common form of access site is an A-V graft, which is constructed by
directly connecting an artery of the arm to a large vein or by using a
synthetic graft. This graft then serves as a high blood flow site into which
dialysis needles can be repetitively placed. However, placing the A-V graft
can cause vascular damage that frequently leads to stenosis, limiting its
useful life to about one to three years. Currently, there are no effective
therapies for the treatment of stenosis in A-V grafts.
iNOS Gene Therapy Rationale. The Company believes local production of nitric
oxide by gene therapy has the potential to reduce stenosis and restenosis.
Nitric oxide, a molecule that inhibits smooth muscle cell proliferation and
promotes endothelial cell layer regrowth following vessel damage, is difficult
to administer systemically due to its toxicity and short half-life. To achieve
the local production of nitric oxide, the Company utilizes gene therapy to
deliver the iNOS gene to the site of vascular damage. iNOS catalyzes the
conversion of L-arginine, a common amino acid, to nitric oxide. GenVec and its
collaborators have shown in large animal efficacy models that Ad.iNOS, the
Company's gene therapy product candidate, inhibits the narrowing of damaged
blood vessels.
Ad.iNOS. Ad.iNOS, an adenovirus vector containing the iNOS gene, is intended
for use in combination with stent placement and A-V grafts to prevent
stenosis. This product candidate is designed to enhance the physical
attributes of a stent with locally produced nitric oxide to inhibit
restenosis. Ad.iNOS is in preclinical development for use with stent placement
in CAD and PVD patients following angioplasty. Ad.iNOS is also in preclinical
development to block stenosis which commonly occurs in A-V grafts of renal
dialysis patients. The therapeutic objectives are to mitigate the medical
complications due to vascular damage arising from A-V grafts and to extend the
useful life of the grafts.
GenVec is conducting additional research to evaluate iNOS gene therapies for
other uses, including organ transplants and wound healing. GenVec intends to
establish corporate collaborations to assist in the development and
commercialization of iNOS gene therapy products.
Oncology
Cancer is the second leading cause of death in the U.S. More than a million
newly diagnosed cases of cancer and 500,000 deaths due to cancer are
anticipated this year. Surgery and radiation therapy are typically used to
control localized disease, whereas chemotherapy is often used in patients with
metastatic cancer. Although new treatments of certain cancers have improved
clinical outcomes, many tumors remain refractory to aggressive surgical,
radiological and chemotherapeutic approaches.
Radiation Therapy
Approximately 60% of all cancer patients in the U.S. receive radiation
therapy each year. Even though radiation therapy can be delivered to a
localized area, its therapeutic benefit is often limited by the radiation
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damage to surrounding normal tissue. GenVec believes that a potential solution
to this major problem is the use of gene therapy to deliver therapeutic
proteins to the tumor to enhance the antitumor activity of radiation therapy
without increasing toxicity to normal tissue.
Ad.TNF(alpha). TNF(alpha) is a potent, immune regulatory protein with
demonstrated clinical antitumor activity. TNF(alpha) exerts its effects by
binding to receptors on the surface of cells, including tumor cells and cells of
the immune system. The clinical utility of TNF(alpha) has been limited because
systemic exposure to TNF(alpha) causes considerable toxicity. The Company's
TNF(alpha)-based gene therapy product candidate, Ad.TNF(alpha) is intended to
address this problem by producing high concentrations of TNF(alpha) in the
target tumor while minimizing systemic exposure to TNF(alpha). Ad.TNF(alpha) is
an adenovirus vector that contains the TNF(alpha) gene and a radiation
responsive promoter. Ad.TNF(alpha) will be injected directly into the tumor in
order to localize production of TNF(alpha) at the site of disease. Since
TNF(alpha) is a secreted protein, transfection of only a portion of the tumor
cells may be sufficient to produce therapeutic concentrations of TNF(alpha) in
the tumor.
The Company expects to develop Ad.TNF(alpha) for use in combination with
radiation therapy for the treatment of cancer. GenVec and its collaborators have
shown that Ad.TNF(alpha) enhances the antitumor activity of radiation in several
animal models of human cancer. For example, in a human head and neck cancer
model, animals receiving both Ad.TNF(alpha) and radiation were observed to have
90% greater tumor shrinkage than animals receiving either radiation or
Ad.TNF(alpha) alone. Although the precise mechanism accounting for the marked
increase in therapeutic effect of radiation is not known, it appears that
disruption of the tumor vasculature is involved. Damage to the blood vessels and
rapid necrosis was evident in the tumors but not in the surrounding normal
tissues. To further enhance the usefulness of Ad.TNF(alpha), a proprietary
promoter was inserted to increase the expression of the TNF(alpha) gene during
radiation therapy. The Company licensed rights to the TNF(alpha) gene for use in
gene therapy in the United States from Asahi Chemical Industry Co., Ltd.
("Asahi"). GenVec entered into a corporate collaboration with Varian, a provider
of radiation therapy equipment in the U.S., to enhance the clinical development
of Ad.TNF(alpha). The Company anticipates filing an IND for Ad.TNF(alpha) in
1999.
Ad.CD. The toxicity produced following the systemic administration of many
antitumor agents, such as fluorouracil, often limits the amount of drug that
can be administered and, consequently, limits the clinical benefit. Selective
delivery of such drugs to tumors should enhance their effectiveness and reduce
side effects. A strategy to accomplish this is to treat the patient with an
inactive drug that can be activated preferentially in the tumor.
Fluorocytosine is a relatively nontoxic precursor of fluorouracil that can be
converted to fluorouracil by the enzyme CD. Since CD is not normally present
in the body, local delivery of CD to tumors by gene therapy may provide a
method to selectively produce fluorouracil at the tumor sites. GenVec and its
collaborators have shown that injection of Ad.CD, an adenovirus vector
containing the CD gene, into tumors can inhibit their growth if the animal is
also administered fluorocytosine. GenVec has initiated a Phase I/II clinical
study in patients with colorectal cancer metastatic to the liver in which
Ad.CD is injected into the tumor and fluorocytosine is given orally. Since
fluorouracil can sensitize tumors to the therapeutic effects of radiation,
GenVec also intends to evaluate Ad.CD in combination with radiation therapy.
GenVec entered into a license agreement with the National Institutes of Health
for certain gene therapy applications of the CD gene, including the treatment
of cancer using replication deficient viral and synthetic vectors. The Company
is conducting research and development of Ad.CD as part of its corporate
collaboration with Fuso.
Immunotherapy
The Company has entered into a corporate collaboration with Fuso to develop
new gene therapy products for the treatment of human cancer. One of the goals
of this research program is the development of gene therapies that can be used
to treat metastatic cancer by stimulating the body's immune system to seek
out, recognize and kill tumor cells. Gene therapy has the potential to
stimulate specific cells of the immune system, such as dendritic cells, to
recognize tumor antigens. These cells appear to play an important role in
generating a robust antitumor response. Delivery of specific tumor antigens to
the dendritic cells by gene transfer has been shown by the Company's
collaborators to enhance an antitumor immune response. Fuso,
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GenVec and their collaborators are conducting a research program aimed at
identifying new product possibilities for the immunotherapy of cancer.
Neurology
Neurological disorders represent an area of major medical need. Current
treatments often have limited effectiveness, and the complex etiology of these
diseases has slowed the development of new treatments. Additionally, changing
demographics are expected to result in significant increases in the elderly
population in whom certain neurological disorders are most prevalent.
Recent scientific advances have led to the discovery of a number of proteins
and corresponding genes implicated in neurological disorders. As the list of
such therapeutic proteins continues to expand, effective delivery of these
proteins to the specific sites of action may be required to optimize
therapeutic utility. As for other indications, gene therapy offers the
potential advantage of providing protein production at the target site for the
treatment of neurological disorders, while minimizing complications due to
systemic exposure.
GenVec intends to develop products for the treatment of neurological disease
based on the use of HSV vectors. Replication-deficient HSV vectors are
attractive for use in gene therapy because of their ability to enter and
persist in tissues of the nervous system. HSV vectors have an additional
advantage of accommodating larger DNA sequences than most other vectors. The
Company believes medical applications may include the treatment of chronic
pain, spinal cord injury and Parkinson's disease.
GenVec, through sponsored research at the University of Pittsburgh and the
University of Glasgow/Medical Research Council's Institute of Virology, has
engineered HSV vectors for the potential treatment of neurological disorders
and created specialized cell lines for the production of such vectors. GenVec
intends to further develop HSV vectors for the treatment of neurological
disorders.
GENVEC CORE TECHNOLOGIES
Gene therapy products are complex entities comprised of vectors, promoters
and therapeutic genes. Targeting therapeutic genes to specific cell types and
regulating the level and duration of gene expression may be possible with the
appropriate combination of technology. Toward this end, GenVec has established
a portfolio of proprietary technology, including therapeutic genes, advanced
adenovirus and HSV vectors, receptor mediated vector targeting capability and
promoters. The Company seeks to expand product development opportunities by
broadening its technology portfolio through internal research and technology
acquisitions.
Technology Portfolio
GenVec's portfolio of technologies includes genes, vectors, receptor
mediated targeting and promoters.
Genes
VEGF. VEGF is a protein which potently induces angiogenesis and is an
important mediator of the normal angiogenic response to ischemia. VEGF has a
high degree of specificity for endothelial cells. In ischemic conditions, VEGF
binds to receptors found on the endothelial cells which line blood vessels.
This binding triggers a complex series of events, including the replication
and migration of endothelial cells to ischemic sites, as well as their
formation into new blood vessels. The Company has an exclusive license for all
gene therapy applications of the VEGF/121/ gene.
iNOS. iNOS catalyzes the conversion of L-arginine to nitric oxide, a short-
lived molecule with a range of cardiovascular actions, including inhibition of
smooth muscle cell proliferation and promotion of endothelial cell layer
regrowth following vessel damage. The Company believes that the local
production of nitric oxide resulting from iNOS gene therapy has the potential
to be used for multiple vascular damage applications,
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including the reduction of restenosis after an angioplasty procedure and
stenosis of A-V grafts which are often used for dialysis in patients with
renal disease. The Company has an exclusive license for all gene therapy
applications of the iNOS gene.
TNF(alpha). TNF(alpha) is a potent immune regulatory protein with demonstrated
clinical antitumor activity. It exerts its effects by binding to receptors on
the surface of cells, including tumor cells and cells of the immune system.
Since TNF(alpha) is a secreted protein, transfection of only a portion of the
tumor cells may be sufficient to produce therapeutic concentrations of
TNF(alpha) in the tumor. GenVec and its collaborators have shown that
Ad.TNF(alpha) enhances the antitumor activity of radiation. The Company has a
license to all gene therapy applications of the TNF(alpha) gene in the U.S.
CD. CD is an enzyme that converts the relatively nontoxic fluorocytosine to
fluorouracil, an active antitumor agent. In addition, fluorouracil can
sensitize tumors to the therapeutic effects of radiation. The Company has an
exclusive license for certain gene therapy applications of the CD gene,
including the treatment of cancer using replication-deficient viral and
synthetic vectors.
Vectors
Vectors typically serve as the delivery system for carrying the DNA
sequences of therapeutic genes and their corresponding regulatory elements to
cells. These DNA sequences are inserted into a vector that can bind to the
target cell. After binding to the cell surface, the vector is internalized and
transported to the cellular nucleus where the therapeutic gene is used for
protein expression. A variety of vector types with different characteristics
have been developed over the years in an attempt to optimize the outcome of
this gene transfer process. Vectors can be viral or non-viral based, and the
choice of vector type depends on many parameters including the specific
disease, the organ and tissue type involved and the therapeutic gene used.
Each vector has its own set of advantages and disadvantages.
For viral vectors, a number of DNA and RNA viruses (including adenovirus and
HSV) have been developed as potential candidates for safe gene transfer. The
Company believes that in most cases, it is undesirable for these viruses to
freely infect and replicate within the target cell. For this reason, viruses
have been modified through the deletion of certain essential genes to render
them replication-deficient. For non-viral approaches, various synthetic
vectors have been designed using components such as lipids, proteins and DNA
in order to enhance the uptake of genes into cells.
GenVec is currently developing gene therapy products using adenovirus and
HSV as vectors. In addition to the development of technologies which could
improve these viral vectors with regard to safety, efficiency, duration of
gene expression and ease of manufacture, the Company routinely evaluates other
viral and non-viral approaches.
Adenovirus Vectors. Adenoviruses are common DNA viruses that can cause upper
respiratory infections, such as the common cold, in humans. The adenovirus DNA
can be manipulated by standard technology to remove DNA necessary for viral
replication. Therapeutic genes can then be inserted into the modified vector
and efficient gene expression can occur in the absence of viral replication.
Adenovirus vectors have several important features which make them
potentially useful in gene therapy. These vectors can be produced in the high
concentrations necessary for commercial production. In addition, they can
transfer genes to both dividing and non-dividing cells. Adenovirus vectors
have been used for gene transfer in many clinical trials and have an excellent
safety profile. Adenovirus vectors do not integrate into the human DNA,
reducing the risk of toxicity.
After transfection, adenovirus vectors typically express the therapeutic
gene for a few days or weeks, but long-term expression is not usually
observed. This feature is well suited for many applications where acute
expression is desired, such as therapeutic angiogenesis. The Company is
further modifying its adenovirus vectors, as well as evaluating other gene
delivery systems, for use when long-term expression is desired.
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GenVec's adenovirus vector development has centered on removing essential
DNA from the adenovirus to alter performance and improve vector manufacture.
In order to produce replication-deficient adenovirus vectors, special cell
lines must be constructed that contain information necessary for vector
production. These new vectors and cell lines provide the manufacturing
platform from which vectors can be produced for gene therapy products. Vectors
that are deficient in multiple viral genes have an increased capacity to carry
larger therapeutic genes, multiple therapeutic genes or promoters. By
eliminating regions of the adenovirus DNA necessary for viral replication, as
exemplified by GenVec's GV10 and GV11 vectors, potential safety, production
and efficacy advantages may be realized. The expression profile of a
therapeutic gene can be altered using different vectors or promoters. A goal
of GenVec's research program is to develop vectors in which the expression of
a therapeutic gene can be tailored to a specific medical need.
Herpes Simplex Virus Vectors. HSV readily infects cells of the nervous
system and then persists in a quiescent state in these cells. Because of these
characteristics, the Company is conducting research on the use of these
vectors for the treatment of neurological disease. GenVec has developed novel,
proprietary vectors derived from genetically engineered herpes simplex virus
type I. The strategy for HSV vector development is similar to that for
adenovirus vectors, including the deletion of genes required for viral
replication. The modified HSV vectors are produced in special cell lines that
have been engineered to contain the information needed for vector production.
GenVec has developed a family of proprietary, non-replicating HSV vectors
with different gene expression characteristics and will evaluate these vectors
for a variety of applications, with an initial focus on the treatment of
neurological disorders. Persistent gene expression has also been demonstrated
using certain of the HSV vectors, suggesting that they may have utility when
chronic expression of the therapeutic gene is desired. This technology has
been developed through arrangements with the Universities of Pittsburgh,
Michigan and Glasgow.
Receptor Mediated Targeting
The goal of the Company's receptor mediated targeting program is to develop
vectors that are more efficient and can target specific cell types more
selectively than currently available vectors. The Company believes such
vectors will have significant safety, efficacy and cost advantages.
A number of clinically relevant cells and tissues have been found to express
few or no adenovirus receptors, including skeletal muscle, vascular smooth
muscle, certain endothelial cells and multiple types of tumor cells.
Consequently, these cell types are not as efficiently transfected by
adenovirus vectors as cells which express high levels of adenovirus receptors.
The Company is developing adenovirus vectors with enhanced efficiency and
targeting features by improving their ability to bind to alternative cellular
receptors. For example, binding structures have been incorporated into
adenovirus coat proteins for attachment to specific cellular receptors. Using
this approach, GenVec has developed a vector to bind to specific integrin
receptors present on endothelial cells that has potential for improved
specificity and efficiency when delivered through a vascular route. The
Company has also created certain vectors which have been shown by the Company
and its collaborators to increase transfection to vascular smooth muscle cells
in a porcine restenosis model by over 40-fold. The Company believes that these
and other vectors may have application in the Company's therapeutic
angiogenesis, vascular damage and oncology programs.
Promoters
The goal of GenVec's promoter program is to tailor gene expression to the
specific needs of its potential products. Promoters strongly influence the
level and duration of therapeutic gene expression induced by gene therapy
vectors. GenVec believes its promoter technology will be important in matching
therapeutic gene expression to the desired actions of the corresponding
therapeutic protein. For example, promoters that restrict expression of the
therapeutic gene to a target tissue, such as the heart, may be useful in the
treatment of cardiovascular disease.
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GenVec is using its proprietary radiation-induced promoter technology to
increase the expression of the TNF(alpha) gene in tumors receiving radiation
therapy. In normal tissues that do not receive exposure to radiation, expression
of TNF(alpha) would not be induced. This approach is intended to enhance the
efficacy of the Ad.TNF(alpha) product candidate while reducing the likelihood of
side effects. GenVec is also developing promoters for use in HSV vectors that
produce long-term gene expression in cells of the nervous system for potential
use in products for the treatment of neurological disorders. By combining the
appropriate vector, promoter and therapeutic gene, GenVec believes products with
improved therapeutic effects can be developed.
STRATEGIC ALLIANCES
Corporate Collaborations
To enhance the evaluation, development and commercialization of product
opportunities, GenVec intends to continue to establish corporate
collaborations. These corporate collaborations may reduce financial risk to
the Company and provide for a continued stream of cash flow. The Company
strives to retain various rights in its corporate collaborations to
participate in the manufacturing and commercialization of products, as
appropriate. Over time, and as the Company establishes or acquires increased
internal capabilities, the Company may elect to work more independently with
respect to the development and commercialization of specific product
opportunities. There can be no assurance that any of the Company's corporate
collaborations will result in the successful development or commercialization
of any technologies or products or that the Company will receive any milestone
payments or royalties from any of these corporate collaborations.
Warner-Lambert Company
In July 1997, the Company entered into a collaboration agreement and stock
purchase agreement with Warner-Lambert to develop and commercialize gene
therapy products incorporating the VEGF gene for therapeutic angiogenesis
("Collaboration Products"). Under the terms of these agreements, the Company
may receive a total of more than $100 million in milestone payments, research
funding, equity purchases and technology access fees, if specified milestones
are achieved. Under the terms of the collaboration agreement, Warner-Lambert
had paid to the Company an aggregate of $13.5 million through April 20, 1998,
in technology access fees, research funding and milestone payments. Pursuant
to the stock purchase agreement, Warner-Lambert purchased $2.0 million of the
Company's capital stock in December 1997, has agreed to purchase $5.0 million
of the Company's Common Stock in a private transaction concurrent with this
offering, and is required to purchase, at the election of the Company, up to
an additional $18.0 million of the Company's capital stock upon the
achievement of certain milestones. The purchase price for all of these equity
investments is 125% of the fair market value of the securities. Upon the
closing of this offering and the concurrent private transaction, Warner-
Lambert will own approximately 6.9% of the Company's Common Stock.
The focus of the initial research and development effort is on any potential
application of the Collaboration Products, including CAD and PVD. Prior to
July 1999, Warner-Lambert may elect to retain indications in addition to CAD
and PVD. In that event, GenVec would receive additional research and
development funding, and the structure of any royalty and milestone payments
would be essentially the same as that covering the initial indications.
Under the collaboration agreement, GenVec granted to Warner-Lambert an
exclusive, royalty-bearing license to sell Collaboration Products worldwide,
excluding Asia, subject to the Company's right to co-promote. Warner-Lambert
is responsible for the costs of developing and commercializing any
Collaboration Products worldwide, excluding Asia, provided the Company will be
responsible for certain expenses if it elects to exercise its co-promotion
right. GenVec retains the right to co-promote Collaboration Products for any
indications other than PVD in the United States and Canada. In addition, the
Company has retained all rights to develop and commercialize Collaboration
Products discovered outside of the designated fields of research, as well as
the option to manufacture bulk quantities of Collaboration Products. Neither
party may sell or
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commercialize any product with the same mechanism of action as BIOBYPASS
angiogen that would compete with a Collaboration Product. Between July 1999
and July 2000, Warner-Lambert has certain negotiation rights with regard to
the development and commercialization of VEGF gene therapy products not
retained by Warner-Lambert.
Warner-Lambert's research and development funding obligations extend through
2002, although Warner-Lambert may terminate the research program under the
collaboration agreement with six months written notice after July 21, 2000.
Both parties have the right to terminate the collaboration agreement for
breach. The collaboration agreement expires on a Collaboration Product-by-
Collaboration Product and country-by-country basis until neither party has any
remaining royalty obligations. The stock purchase agreement terminates upon
the termination of the collaboration agreement. An Executive Committee
comprising of three representatives from each of the Company and Warner-
Lambert oversees and manages the collaboration.
Fuso Pharmaceuticals Industries, Ltd.
In September 1997, GenVec and Fuso established a collaboration to conduct
research and to identify, evaluate and develop gene therapy products for the
treatment of cancer. If the research program continues for its full term, Fuso
is required to provide $1.0 million in research funding annually for five
years, of which $750,000 will be paid to the Company each year. Fuso has the
right to terminate the collaboration after the second anniversary of the
collaboration upon 90 days prior written notice. In connection with
establishment of the collaboration, Fuso purchased shares of the Company's
capital stock for $1.0 million.
As part of the collaboration, GenVec granted Fuso an exclusive, royalty-
bearing license to develop and commercialize products developed under the
collaboration for the treatment of cancer in Japan and at Fuso's option, Korea
and Taiwan. Fuso will be responsible for the development and commercialization
of any products in its territory. GenVec will receive additional payments for
the achievement by Fuso of specified product development and regulatory
milestones, and royalties on the sale of any such products commercialized by
Fuso. GenVec has retained all rights to develop and commercialize such
products for the treatment of cancer in the rest of the world, and for all
other uses worldwide, subject to certain restrictions, independently and with
third parties.
Varian Associates, Inc.
In March 1998, the Company and Varian entered into a three-year
collaborative agreement in the field of radiation and gene therapy. Under the
agreement, the parties will collaborate on the preclinical and clinical
research and development of specific products and technology, with the goal of
developing novel, improved therapies based on the combined use of radiation
therapy and gene therapy products. Varian will have primary responsibility for
the development of equipment and software for delivery of targeted radiation
therapy, and the Company will have primary responsibility for developing gene
therapy products. The Company and Varian each retain the right to develop and
commercialize their respective products and technologies independently or with
third parties.
Selected Academic Collaborations and Technology Licenses
GenVec's objective is to create multiple innovative products that meet major
medical needs. To accomplish this objective, the Company combines its core
technology development activities with acquisitions and licensing of its
business technologies, including therapeutic genes, from various sources. In
addition to the contractual arrangements described below, the Company funds
research in laboratories of leading authorities at several academic
institutions for the development of new technologies and the conduct of
preclinical and clinical activities. The Company generally establishes
exclusive license agreements with these and other institutions to obtain the
benefits of any intellectual property invented in connection with such funded
activities. There can be no assurance that the Company's academic
collaborations will result in the successful development or commercialization
of any technologies or products.
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Cornell University
In May 1993, the Company entered into a five-year sponsored research
agreement with Cornell University for activities to be conducted in the
laboratory of Dr. Ronald G. Crystal at the Cornell Medical Center.
Upon expiration in March 1998 of the May 1993 agreement, the Company and
Cornell University entered into a new, four-year sponsored research agreement
for the conduct of preclinical and clinical research in the laboratory of Dr.
Crystal. Under the terms of the new agreement and subject to certain
termination rights, GenVec has committed to pay approximately $3.6 million in
sponsored research during a specified minimum term. The Company retains the
option to exclusively license inventions arising from the sponsored research
activities.
The University of Pittsburgh
In June 1996, GenVec signed an agreement with the University of Pittsburgh
providing the Company with an exclusive, worldwide license to all gene therapy
applications of the human iNOS gene. The Company will make future payments
based on the achievement of specified regulatory milestones and will share
with the University of Pittsburgh certain profits the Company realizes from
the research, development and commercialization of products incorporating the
iNOS gene. GenVec has agreed to provide a minimum royalty on the sale of these
products, all royalties are creditable against the profits to be shared. In
addition, the Company granted the University of Pittsburgh a warrant to
purchase shares of the Company Common Stock, which shall vest upon the earlier
of the achievement of specified product development and regulatory milestone
events or certain dates. In June 1996, GenVec also entered into a two-year
sponsored research agreement to fund the research of iNOS in Dr. Timothy
Billiar's laboratory at the University of Pittsburgh School of Medicine.
In addition, the Company has separate sponsored research arrangements and a
license agreement with the University of Pittsburgh relating to HSV vector
technology.
Scios, Inc.
In May 1996, the Company entered into an exclusive, worldwide license with
Scios for rights to all gene therapy applications of its proprietary form of
the VEGF gene. The parties will share in certain profits the Company realizes
from the research, development and commercialization of products incorporating
the VEGF gene. GenVec has agreed to provide a minimum royalty on the sale of
these products, which are creditable against the profits to be shared. In
addition, the Company granted Scios a warrant to purchase shares of the
Company's Common Stock, which vests upon the earlier of the achievement of
specified product development milestone events or certain dates. In May 1996,
Scios purchased $1.0 million of the Company's capital stock.
Asahi Chemical Corporation
In February 1998, the Company entered into a license agreement with Asahi
for the rights in the United States to all gene therapy applications of the
TNF(alpha) gene. The Company paid Asahi a fee upon the execution of the
agreement, and will make future payments based upon the achievement of specified
product development and regulatory milestones. Under the agreement, the Company
will also pay to Asahi royalties on sales of products in the United States
incorporating the TNF(alpha) gene.
INTELLECTUAL PROPERTY
The patent positions of pharmaceutical, biopharmaceutical and biotechnology
companies, including the Company, are generally uncertain and involve complex
legal and factual questions. In addition, patent law, and particularly patent
law relating to the gene therapy field, is still evolving. Development and
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commercialization of the Company's product candidates and any potential
products will require, among other things, the integration of genes, vectors
and promoters with a delivery mechanism and the development of commercially
viable manufacturing processes. The Company's commercial success will be
dependent in part upon achieving such integration and development without
infringing the proprietary rights of others and upon obtaining intellectual
property protection that will give the Company's products an exclusive market
position.
The Company and its licensors have obtained patents and continue to seek
patent protection for technologies which may relate to the Company's product
candidates and potential products, as well as technologies which may prove
useful for future products, including technologies related to the VEGF/121/
gene, the iNOS gene, the TNF(alpha) gene, the CD gene, adenovirus and HSV vector
components, cell lines, viral targeting technology and promoters. As of March
31, 1998, the Company held or had licenses to 154 issued, allowed or pending
patents worldwide, of which 28 are issued or allowed in the U.S. Of those
patents, the Company has been granted an exclusive license for all gene therapy
applications under two United States patents relating to the VEGF/121/ gene and
the use thereof, an exclusive license in the field of gene therapy under two
United States patents relating to the human iNOS gene and the use thereof, and
an exclusive license in the field of gene therapy for the treatment of cancer
and restenosis, but excluding applications which utilize viral-based delivery
systems which are replication competent, under two United States patents
relating to the CD gene and the use thereof. The Company has also been granted a
nonexclusive license under the U.S. patent relating to the TNF(alpha) gene and
the use thereof. In addition, the Company and its licensors have patent
applications pending in Europe, Japan and other countries. In furtherance of its
current and prospective business, the Company anticipates that it and its
current and future licensors will continue to seek to improve existing
technologies and to develop new technologies and, when possible, secure patent
protection for such improvements and new technologies.
Certain intellectual property components used in developing gene therapy
products, such as certain vectors and promoters used by the Company and
others, are in the public domain. As a result, the Company is unable to obtain
patent protection with respect to such components and third parties can freely
use such components. There can be no assurance that third parties will not
develop products using such components that compete with the Company's
potential products.
There can be no assurance that any of the pending patent applications owned
or licensed by the Company contain patentable and enforceable claims or will
result in valid issued patents, that the claims of any issued patents or any
patents issued in the future are valid and enforceable and will provide
meaningful protection, that the Company or its collaborators will develop
additional proprietary technologies that are patentable, or that any patents
now or in the future licensed or issued to the Company or its collaborators
will provide a basis for commercially viable products or will provide the
Company with any competitive advantages. Furthermore, there can be no
assurance that others will not independently develop similar or alternative
technologies, duplicate any of the Company's technologies, or, if patents are
licensed or issued to the Company, design around or otherwise circumvent the
patented technologies or other intellectual property licensed to or developed
by the Company. For example, while the Company has an exclusive license under
two United States patents relating to the VEGF/121/ gene and the use
thereof for gene therapy applications, third parties have patents for other
forms of the VEGF gene and such third parties or their licensees may develop
products using such other forms of the VEGF gene. There can be no assurance
that products based on such other forms of the VEGF gene or based upon other
growth factors will not be functionally equivalent to or better than the
Company's proposed products, or that such other products will not be more
commercially successful than any products commercialized by the Company or its
collaborators for other reasons, such as superior marketing or lower costs.
Similarly, other parties hold patents for other nitric oxide synthase, tumor
necrosis factor and CD genes. Patents and patent applications of the Company,
its collaborators and its licensors may become involved in interferences,
oppositions or similar proceedings and there can be no assurance that such
patents and patent applications will survive, in whole or in part, such
proceedings. No assurance can be given that patents issued to the Company, its
collaborators or its licensors, if any, will not be contested, narrowed,
revoked or invalidated. Academic collaborators and the U.S. government may
retain
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certain rights in intellectual property, including patents and patent
applications, developed by such academic collaborators.
While the Company has not conducted freedom to use patent searches on
aspects of its product candidates and potential products and may therefore be
unaware of relevant patents and patent applications of third parties, the
Company is aware of several United States patents and patent applications and
foreign patents and patent applications owned by third parties relating to
gene therapy, promoters, cell lines, vectors and delivery mechanisms which do
or may cover aspects of the Company's product candidates and potential
products or their use or manufacture, including BIOBYPASS angiogen, as well as
other aspects of the Company's technology. Because patent applications are
maintained in secrecy in the United States, the Company cannot be certain that
third parties have not filed applications relating to technology being
developed by the Company or its collaborators or technology covered by patents
or patent applications of the Company, its collaborators or its licensors.
Certain third-party patent applications contain broad claims, and it is not
possible to determine whether or not such claims will be narrowed during
prosecution or will issue as patents, even if the claims appear to encompass
prior art or have other defects. The Company, its collaborators or its
licensors may choose to oppose or challenge third-party patents and patent
applications and such an opposition or challenge can be expensive and time
consuming. There can be no assurance that any opposition or challenge will be
successful. There can also be no assurance that the development, manufacture,
use, offer for sale, sale or importation of the Company's product candidates
and potential products by the Company or its collaborators will not infringe
claims of these or other issued patents, or claims that may issue from these
or other applications or that a third party will not threaten or file an
infringement action.
If the Company or one of its collaborators brings a patent infringement
action or otherwise brings an action to protect proprietary rights against
third parties or is required to defend against a charge of patent infringement
or a charge of infringement of other intellectual property rights, substantial
costs could be incurred and such actions could result in a significant
diversion of management's time and attention. In addition to being a potential
party to patent infringement litigation, the Company is involved in an
interference proceeding and could become involved in additional interference
proceedings declared by the United States Patent and Trademark Office or
opposition proceedings in a foreign patent office. Patent infringement actions
and other intellectual property litigation, as well as participation in
interference or opposition proceedings, can be expensive and time-consuming,
even in those instances in which the outcome is favorable to the Company.
There can be no assurance that the Company or its collaborators will prevail
in any such litigation or proceedings. The Company and its licensors obtain
intellectual property, including biological material and know-how, from third
parties pursuant to various agreements and arrangements. Third parties may
challenge the intellectual property rights of the Company or its licensors or
claim ownership of intellectual property developed by the Company or its
collaborators. The Company could incur substantial expenses in contesting such
claims, whether successful or not.
The Company has certain licenses and believes that it or its collaborators
will be required to obtain additional licenses under third-party patents and
patent applications to continue research and development and to commercialize
the Company's product candidates and potential products, and there can be no
assurance that any such license will be made available on commercially viable
terms, if at all. In addition, licensors may terminate existing or future
license agreements, or terminate the exclusive nature of such agreements, if
the Company fails to meet specified milestones or other events. Any
termination of a license, or any failure of the Company or its collaborators
to obtain any required license on reasonable terms or at all, or the failure
to maintain the exclusivity of the Company's exclusive licenses, could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company's product candidates and potential products
will require several components that may each be the subject of a license
agreement. The cumulative license fees and royalties for these components may
make the commercialization of such product candidates and potential products
uneconomical.
The Company may rely on trade secret protection and confidentiality
agreements to protect its interests. It is the Company's policy to require its
employees, consultants, contractors, manufacturers, collaborators and
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other advisors to execute confidentiality agreements upon the commencement of
employment, consulting or collaborative relationship with the Company. The
Company also requires signed confidentiality agreements from any entity that
is to receive confidential data. In the case of employees, consultants and
contractors, the agreements generally provide that all inventions made by the
individual while rendering individual services to the Company shall be
assigned to the Company as the property of the Company. Nevertheless, there
can be no assurance that proprietary information will not be disclosed, that
others will not independently develop substantially equivalent proprietary
information or otherwise gain access to the Company's trade secrets, or that
the Company can meaningfully protect its trade secrets. In the case of a
collaborative arrangement which requires the sharing of information, the
Company's policy is to make available to its collaborator only such
information as is relevant to the arrangement, under controlled circumstances,
and only during the contractual term of the collaborative arrangement, and
subject to a duty of confidentiality on the part of its collaborator. There
can be no assurance, however, that such measures will adequately protect the
Company's information. Any material leak of confidential information into the
public domain or to third parties may have a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk
Factors--Intellectual Property."
SCIENTIFIC ADVISERS
The Company has established a select group of scientists and clinicians as
its Scientific Advisory Board ("SAB") to advise the Company on scientific and
technical matters. The Company also consults with teams of scientists and
clinicians on scientific and technical matters for each of the Company's
anticipated product areas. The scientific advisers are generally compensated
by retainer or on a time and expense basis, and certain of them have received
shares of or options to purchase the Company's Common Stock. The Company has
entered into consulting agreements with a number of the scientific advisers.
Scientific Advisory Board
The SAB includes:
Jan L. Breslow, M.D., Frederick Henry Leonhardt Professor, The Rockefeller
University, New York. Dr. Breslow is a member of the National Academy of
Sciences and a former President of the American Heart Association. Dr. Breslow
received his M.D. from Harvard Medical School.
Ronald G. Crystal, M.D., Bruce Webster Professor of Internal Medicine at
Cornell University Medical College, Chief of the Division of Pulmonary and
Critical Care Medicine at The New York Hospital-Cornell Medical Center and
Director of the Gene Therapy Core Facility at Cornell University Medical
College. Dr. Crystal is the Chairman of the SAB and a founder of the Company.
Dr. Crystal received his M.D. from the University of Pennsylvania.
Joseph C. Glorioso III, Ph.D., William S. McEllroy Professor of Biochemistry
and Chairman, Department of Molecular Genetics and Biochemistry, University of
Pittsburgh School of Medicine, Director of the Pittsburgh Human Gene Therapy
Center, Founding Board Member and Treasurer of the American Society of Gene
Therapy and the U.S. Editor for Gene Therapy. Dr. Glorioso received his Ph.D.
in Microbiology from Louisiana State University.
Samuel Hellman, M.D., A.N. Pritzker Distinguished Service Professor,
Department of Radiation and Cellular Oncology, University of Chicago. Dr.
Hellman was formerly Dean for the Medical Center and Physician-in-Chief of the
Memorial Sloan-Kettering Cancer Center. Dr. Hellman received his M.D. from the
State University of New York, College of Medicine at Syracuse.
Cardiovascular Medicine
Timothy R. Billiar, M.D., Watson Professor of Surgery, University of
Pittsburgh School of Medicine. Dr. Billiar received his M.D. from the
University of Chicago.
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Jan L. Breslow, M.D., Frederick Henry Leonhardt Professor, The Rockefeller
University, New York. Dr. Breslow is a member of the National Academy of
Sciences and a former President of the American Heart Association. Dr. Breslow
received his M.D. from Harvard Medical School.
Maurizio C. Capogrossi, M.D., Chief, Laboratory of Vascular Pathology,
Instituto Dermopatico dell'Immacolata, Rome, Italy. Dr. Capogrossi received
his M.D. from the Universita Statale "La Sapienza" in Rome, Italy.
Delos M. Cosgrove, M.D., Chairman of the Department of Thoracic and
Cardiovascular Surgery, The Cleveland Clinic Foundation, Cleveland, Ohio. Dr.
Cosgrove received his M.D. from the University of Virginia School of Medicine.
Todd K. Rosengart, M.D., Associate Professor of Cardiothoracic Surgery,
Cornell University Medical College, New York. Dr. Rosengart received his M.D.
from Northwestern University.
Eric J. Topol, M.D., Chairman of the Department of Cardiology and Director,
Joseph J. Jacobs Center for Thrombosis and Vascular Biology, The Cleveland
Clinic Foundation, Cleveland, Ohio. Dr. Topol received his M.D. from the
University of Rochester School of Medicine and Dentistry, Rochester, New York.
Jeffrey D. Trachtenberg, M.D., Attending Assistant Professor of Surgery,
University of Pittsburgh School of Medicine. Dr. Trachtenberg received his
M.D. from the State University of New York. His general surgery and vascular
surgery training were conducted at Washington University, St. Louis, Missouri.
Oncology
Albert B. Deisseroth, M.D., Ph.D., Ensign Professor of Medicine, Chief of
Medical Oncology, Yale University School of Medicine, New Haven, Connecticut.
Dr. Deisseroth received his M.D. and Ph.D. from the University of Rochester
School of Medicine and Dentistry, Rochester, New York.
Samuel Hellman, M.D., A.N. Pritzker Distinguished Service Professor,
Department of Radiation and Cellular Oncology, University of Chicago. Dr.
Hellman was formerly Dean for the Medical Center and Physician-in-Chief of the
Memorial Sloan-Kettering Cancer Center. Dr. Hellman received his M.D. from the
State University of New York, College of Medicine at Syracuse.
Donald W. Kufe, M.D., Professor of Medicine, Harvard Medical School, Chief,
Cancer Pharmacology, Department of Adult Oncology, Dana-Farber Cancer
Institute and Deputy Director of the Dana-Farber Cancer Center, Boston,
Massachusetts.
Tsuneya Ohno, M.D., Ph.D., Jikei University School of Medicine, Tokyo, Japan
and Chairman, the Study Group for Gene Therapy in Japan. Dr. Ohno received his
M.D. from the Jikei University School of Medicine in Tokyo, Japan and his
Ph.D. in Molecular Biology from Keio University in Tokyo, Japan.
Ralph R. Weichselbaum, M.D., Harold H. Hines, Jr. Professor and Chairman,
Department of Radiation and Cellular Oncology, University of Chicago. Dr.
Weichselbaum is a member of the Institute of Medicine of the National Academy
of Sciences. Dr. Weichselbaum received his M.D. from the University of
Illinois.
Herpes Virus Vectors
Neal A. DeLuca, Ph.D., Professor, Department of Molecular Genetics and
Biochemistry, University of Pittsburgh. Dr. DeLuca received his Ph.D. in
Biophysics from the Pennsylvania State University.
David J. Fink, M.D., Professor of Neurology and Professor of Molecular
Genetics and Biochemistry, the University of Pittsburgh Medical School. Dr.
Fink received his M.D. from Harvard Medical School.
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Joseph C. Glorioso III, Ph.D., William S. McEllroy Professor of Biochemistry
and Chairman, Department of Molecular Genetics and Biochemistry, University of
Pittsburgh School of Medicine, Director of the Pittsburgh Human Gene Therapy
Center, Founding Board Member and Treasurer of the American Society of Gene
Therapy and the U.S. Editor for Gene Therapy. Dr. Glorioso received his Ph.D.
in Microbiology from Louisiana State University.
Christopher Preston, Ph.D., Band 2 Scientist, Non-Clinical Scientific Staff
at the Institute of Virology, Glasgow. Dr. Preston received his Ph.D. in
Biochemistry at the University of Cambridge.
Adenovirus Vectors
Min Li, Ph.D., Assistant Professor of Neuroscience, John Hopkins University
School of Medicine. Dr. Li received his Ph.D. in Molecular Biology and
Genetics from the John Hopkins University School of Medicine.
Charles S. H. Young, D.Phil., Professor of Microbiology, Columbia
University. Dr. Young received his D.Phil. in Yeast Genetics from Oxford
University.
COMPETITION
Competition among entities attempting to identify and develop new therapies
is intense. The Company faces, and will continue to face, competition from
pharmaceutical and biotechnology companies, academic and research institutions
and government agencies, both in the United States and abroad. Many of the
Company's competitors have substantially greater capital resources, research
and development staffs, facilities, manufacturing and marketing experience,
distribution channels and human resources than the Company. Future competition
will likely come from existing competitors (including competitors with rights
to proprietary forms of the VEGF gene and other genes the Company currently
uses in its product candidates), as well as other companies seeking to develop
new treatments. Competitors or their academic collaborators may identify
important genes or delivery mechanisms before the Company, or develop gene
therapies that are more effective than those developed by the Company or its
corporate collaborators, or obtain regulatory approvals of their drugs more
rapidly than the Company or its corporate collaborators. Moreover, there can
be no assurance that the Company's competitors will not obtain patent
protection or other intellectual property rights that would limit the
Company's or its collaborators' ability to use the Company's gene therapy
technologies. Any of these events could materially and adversely affect the
Company's business, financial condition and results of operations.
The Company will rely on its corporate collaborators for support of certain
of its enabling technologies and intends to rely on its corporate
collaborators for preclinical and clinical development of related potential
products and the manufacturing and marketing of such products. Generally, the
Company's strategic alliance agreements do not preclude the corporate
collaborator from pursuing development efforts utilizing approaches distinct
from that which is the subject of the alliance. Product candidates of the
Company, therefore, may be subject to competition with a potential product
under development by a corporate collaborator. See "Risk Factors--Reliance on
Warner-Lambert and Other Corporate Collaborators."
Rapid technological development by the Company or others may result in
products or technologies becoming obsolete before the Company recovers
development expenses. Products developed by the Company could be made obsolete
by less expensive or more effective technologies, even technologies unrelated
to gene therapy. For example, competitors may also develop small molecule,
protein, antisense or other therapeutic or surgical approaches that may
compete with or obviate the need for the Company's products. There can be no
assurance that the Company will be able to make the enhancements to its
technology necessary to compete successfully with existing or newly emerging
technologies. See "Risk Factors--Intense Competition."
MANUFACTURING
The Company has limited experience in manufacturing and currently lacks the
resources or capability to manufacture any of its product candidates on a
commercial scale. It currently has a research facility for the
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<PAGE>
production of its product candidates for preclinical purposes and relies on
third-party manufacturers of its product candidates for clinical purposes. For
the Company's lead product, BIOBYPASS angiogen, Warner-Lambert has the right
to fill and finish the final product. However, production of BIOBYPASS
angiogen for future clinical trials and possible commercialization is
currently intended to be performed primarily through a third-party
manufacturer. The Company currently intends to rely primarily on corporate
collaborators and third-party manufacturers for clinical and commercial
purposes. If a third-party manufacturer cancels or terminates an existing
relationship or if the Company is unable to contract for or obtain a
sufficient supply of its product candidates on acceptable terms, there could
be significant reductions in sales and delays in bringing the Company's
product candidates to market, as well as delays in the Company's clinical
testing schedule, any of which could have a material adverse effect on the
Company's business, financial condition and results of operations.
Furthermore, it is anticipated that production of the Company's product
candidates will be based in part on proprietary technology of the Company.
Successful technology transfer will be necessary. There can be no assurance
that manufacturers will abide by any limitations or confidentiality
restrictions on licenses with the Company. In addition, any such manufacturer
may develop process technology related to the manufacture of the Company's
compounds that such manufacturer owns either independently or jointly with the
Company. This would increase the Company's reliance on such manufacturer or
require the Company to obtain a license from such manufacturer in order to
have its products manufactured. There can be no assurance that any such
license would be available on terms acceptable to the Company, if at all.
Further, there can be no assurance that the arrangements with third-party
manufacturers will be successful.
Successful large-scale manufacturing of gene therapy products has yet to be
demonstrated by any third party, and it is anticipated that significant
process development changes will be necessary for the commercial process. For
example, changes in the current production process will be required for any
commercial manufacture of BIOBYPASS angiogen. There can be no assurance that
the Company or any third party will be able to manufacture commercial-scale
quantities of gene therapy products, or receive appropriate governmental
approvals.
In addition, the Company intends to continue to develop its own
manufacturing capability, which will require significant resources and will be
subject to ongoing government approval and oversight. There can be no
assurance that the Company's efforts in this regard will be successful. See
"Risk Factors--Manufacturing Limitations" and "Risk Factors--Government
Regulation; No Assurance of Regulatory Approval."
GOVERNMENT REGULATION
Prior to marketing, any products developed by the Company or its corporate
collaborators must undergo an extensive regulatory approval process in the
United States and other countries. This regulatory process, which includes
preclinical studies and clinical trials, and may include post-marketing
surveillance of each compound to establish its safety and efficacy, can take
many years and require the expenditure of substantial resources. Data obtained
from preclinical studies and clinical trials are subject to varying
interpretations that could delay, limit or prevent regulatory approval. Delays
or rejections may also be encountered based upon changes in FDA policies for
drug approval during the period of product development and FDA regulatory
review. Similar delays may also be encountered in obtaining regulatory
approval in foreign countries. Delays in obtaining regulatory approvals could
adversely affect the marketing of any drugs developed by the Company or its
corporate collaborators, impose costly procedures upon the Company's or its
corporate collaborators' activities, diminish any competitive advantages that
the Company or its corporate collaborators may attain and adversely affect the
Company's receipt of royalties. There can be no assurance that regulatory
approval will be obtained for products developed by the Company or its
corporate collaborators. Furthermore, regulatory approval may entail
limitations on the indicated uses of a proposed product. Because certain of
the Company's product candidates involve the application of new technologies
and may be based upon a new therapeutic approach, such products may be subject
to substantial additional review by various government regulatory authorities,
and, as a result, regulatory approvals may be obtained more slowly than for
products based upon
44
<PAGE>
more conventional technologies. The Company's product candidates may require a
delivery device and such product and device may be subject to separate
regulatory review, which could also delay regulatory approval.
The Company believes that the commercial uses of its products will be
regulated as biologics by the FDA and comparable regulatory bodies of other
countries. Gene therapy is, however, a relatively new technology, and the
regulatory requirements governing gene therapy products are uncertain. This
uncertainty may result in excessive costs or extensive delays in the
regulatory approval process, adding to the already lengthy review process for
human therapeutic products in general. The Company is not aware of any gene
therapy products that have received marketing approval from the FDA or any
comparable regulatory body of any other country. The regulation of the
Company's products and its ongoing research is subject to change, and future
legislative or administrative acts in the United States or other countries
could have a material adverse effect on the Company's business, financial
condition and results of operations. Regulatory requirements ultimately
imposed could adversely affect the ability of the Company's corporate
collaborators to clinically test, manufacture or market products, and could
significantly delay or reduce the milestone or royalty payments payable to the
Company.
Even if regulatory approval is obtained, a marketed product and its
manufacturer are subject to continuing review. Discovery of previously unknown
problems with a product may result in withdrawal of the product from the
market, and could have a material adverse effect on the Company's business,
financial condition and results of operations. Violations of regulatory
requirements at any stage during the regulatory process, including preclinical
studies and clinical trials, the approval process, post-approval or in GMP,
may result in various adverse consequences to the Company, including the FDA's
delay in approval or refusal to approve a product, withdrawal of an approved
product from the market or the imposition of criminal penalties against the
manufacturer and license holder. There can be no assurance that the Company or
its corporate collaborators will be able to conduct clinical testing or obtain
necessary approvals from the FDA or other regulatory authorities for any
products. Further, the terms of approval of any marketing application,
including the labeling content, may be more restrictive than the Company
desires and could affect the marketability of the Company's proposed products.
Failure to obtain required governmental approvals will delay or preclude the
Company or its corporate collaborators from marketing products or limit the
commercial use of such products and could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Risk Factors--Government Regulation; No Assurance of Regulatory Approval."
EMPLOYEES
As of March 31, 1998, the Company had a total of 54 employees, 16 of whom
hold M.D. or Ph.D. degrees and 15 of whom hold other advanced degrees. Of
these, 38 were engaged in research and development and 16 were engaged in
business development, finance and general administration. The Company's future
success depends in significant part upon the continued service of its key
scientific, technical and senior management personnel and its continuing
ability to attract and retain highly qualified technical and management
personnel. None of the Company's employees is represented by a labor union or
covered by a collective bargaining agreement. The Company has not experienced
any work stoppages and considers its relations with its employees to be good.
FACILITIES
The Company's facilities are located in Rockville, Maryland. The Company
leases approximately 14,000 square feet of laboratory and office space on a
month-to-month basis. The Company may terminate this lease by giving notice
for each of five defined areas, one at a time, over a period that, in the
aggregate, would total at least 210 days. In addition, the Company leases
approximately 9,000 square feet of office space under a lease which expires in
April 2000. The Company believes that these facilities will be adequate for
its current and near-term needs but is in the process of identifying new
facilities for expansion.
45
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the Company's
directors and executive officers as of April 28, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ------------------------------------------------
<S> <C> <C>
Herbert J. Conrad (1)(2).. 65 Chairman of the Board of Directors
Paul H. Fischer, Ph.D.
(1)...................... 48 President, Chief Executive Officer and Director
Thomas E. Smart........... 34 Vice President, Corporate Development, Corporate
Secretary and Treasurer
Imre Kovesdi, Ph.D........ 51 Vice President, Discovery Research
Grant Yonehiro............ 34 Vice President, Product Management
Hal S. Broderson, M.D.
(2)(3)................... 40 Director
Harry T. Rein (1)......... 53 Director
Wendell Wierenga Ph.D..... 50 Director
Gregory F. Zaic (3)....... 50 Director
</TABLE>
- --------
(1) Member of Executive Committee
(2) Member of the Compensation Committee
(3) Member of the Audit Committee
Herbert J. Conrad has served as Chairman of the Board of Directors of the
Company since September 1996, and as a director of the Company since August
1994. From September 1996 to November 1996, he was the President and Chief
Executive Officer of the Company. From September 1993 to August 1994, he was a
director of Theragen, Inc., which merged into the Company in August 1994. He
served as President of the Pharmaceuticals Division and Senior Vice President
of Hoffmann-LaRoche, Inc. ("Roche") from 1982 until his retirement in 1993.
Mr. Conrad joined Roche in 1960 and held various positions, including Senior
Vice President of the Pharmaceuticals Division, Chairman of the Board of Medi-
Physics, Inc., and Vice President, Public Affairs and Planning Division. Mr.
Conrad is a director of Gensia Sicor Inc., Bio-Technology General Corp.,
UroCor, Inc. and Dura Pharmaceuticals, Inc.
Paul H. Fischer, Ph.D. has served as President, Chief Executive Officer, and
as a director of the Company since November 1996, and in various positions
with the Company since March 1995. From May 1992 to April 1995, he was
Executive Vice President of Research and Development with Oncologix, Inc., a
biotechnology company. From September 1987 to May 1992, he served as Manager,
Cancer Research at Pfizer, Inc., a pharmaceutical company. Dr. Fischer
received his B.S. in Biology from the University of Denver, his Ph.D. in
Pharmacology from the University of California at San Francisco and performed
post-doctoral research in Pharmacology at Yale University School of Medicine.
Thomas E. Smart has served as Vice President of Corporate Development of the
Company since July 1996. From March 1995 to June 1996, he was Executive
Director of Corporate Development of the Company. From August 1991 to March
1995, he was with Cell Genesys, Inc., a biotechnology company, most recently
as Director of Business Development. From July 1990 to July 1991, Mr. Smart
was with G.D. Searle & Co., a pharmaceutical company, most recently as a
Policy Planning Associate, Corporate Strategic Planning. Mr. Smart received
his B.S. in biological sciences from Cornell University and his M.B.A. from
the University of Chicago Graduate School of Business.
Imre Kovesdi, Ph.D. has served as Vice President of Discovery Research of
the Company since September 1995, and as Director of Vector Biology of the
Company from July 1993 to September 1995. From
46
<PAGE>
1992 to 1993, he led projects in eukaryotic gene expression and neurotrophic
factors at Lederle Laboratories. From 1990 to 1993, he was Adjunct Assistant
Professor of Microbiology and Immunology at the New York Medical College. Dr.
Kovesdi received his B.A.Sc. in Electrical Engineering from the University of
British Columbia and his Ph.D. in Molecular Biology from Simon Fraser
University.
Grant Yonehiro has served as Vice President of Product Management of the
Company since September, 1997, as Director of Corporate Development from May
1997 to September 1997, and as Associate Director of Corporate Development
from March 1996 to May 1997. From January 1994 to March 1996, he was at Cell
Genesys, Inc., a biotechnology company, most recently as Manager of Business
Development. From June 1992 to December 1993, he was a Research Analyst for
Focus Advisors, Inc., an equity research organization focusing on health care.
Mr. Yonehiro received his Bachelor of Individualized Studies from the
University of Minnesota and his M.B.A. from the University of California at
Berkeley.
Hal S. Broderson, M.D. has served as a director of the Company since
inception. From December 1992 to September 1993, he was the Company's
President. From 1988 to the present, he has been a general partner of Cashon
Biomedical Associates, L.P., which is the managing general partner of the
Hillman Medical Ventures Partnerships. These venture capital funds focus on
early stage medical technology. Dr. Broderson is currently President of Rock
Hill Ventures, Inc., a venture capital and management firm. Dr. Broderson
received his B.A. in Biology from Indiana University, his M.D. from the
University of Kentucky College of Medicine and his M.B.A. from the Wharton
School at the University of Pennsylvania.
Harry T. Rein has served as a director of the Company since September 1995.
From 1987 to the present, he has been Managing General Partner of Canaan
Partners, a venture capital firm. Mr. Rein received his A.B. from Ogelthorpe
College and his M.B.A. from the University of Virginia. Mr. Rein is also a
director of Anadigics, Inc. and Perception, Inc.
Wendell Wierenga, Ph.D. has served as a director of the Company since April
1998. From 1990 to the present, he has been with the Parke-Davis
Pharmaceutical Research division of the Warner-Lambert Company, most recently
as Senior Vice President of Worldwide Preclinical Research, Development and
Technologies. From 1997 to the present he has been Adjunct Professor in the
Department of Chemistry at the University of Michigan. Dr. Wierenga received
his B.A. in Chemistry from Hope College and his Ph.D. in Chemistry from
Stanford University. Dr. Wierenga is also a director of Onyx Pharmaceuticals,
Inc.
Gregory F. Zaic has served as a director of the Company since inception.
From May 1993 to September 1993, Mr. Zaic was Chief Executive Officer of the
Company and from May 1993 to September 1996, he was Chairman of the Board of
Directors of the Company. From 1987 to the present, he has been a general
partner of Prince Ventures, L.P., a venture capital firm. Mr. Zaic received
his B.S. in Aerospace and Mechanical Engineering from Princeton University and
his M.S. in Mechanical Engineering and his M.S. in Management from the
Massachusetts Institute of Technology. Mr. Zaic is also a director of Aronex
Pharmaceuticals, Inc.
COMMITTEES OF THE BOARD OF DIRECTORS
The Executive Committee comprises Dr. Fischer, Mr. Conrad and Mr. Rein. The
Executive Committee exercises all powers and authority of the Board with
certain exceptions as provided under Delaware law.
The Compensation Committee comprises Mr. Conrad and Dr. Broderson. The
Compensation Committee makes recommendations regarding the Company's Amended
and Restated 1993 Stock Incentive Plan, the 1998 Director Option Plan and the
1998 Employee Stock Purchase Plan, determines salaries for the executive
officers and incentive compensation for employees and consultants of the
Company, and reviews certain other compensation matters.
The Audit Committee comprises Mr. Zaic and Dr. Broderson. The Audit
Committee makes recommendations to the Board of Directors regarding the
selection of independent auditors, reviews the results and scope of the audit
and other services provided by the Company's independent auditors and reviews
and evaluates the Company's audit and control functions.
47
<PAGE>
DIRECTOR COMPENSATION
The Company's Outside Directors (as defined below) currently receive $1,000
per Board meeting attended, $500 per Committee meeting attended and $1,250 per
quarter as a retainer. All Directors receive reimbursement for travel expenses
from the Company for their service as members of the Board of Directors. Under
the 1998 Director Option Plan, each New Outside Director (as defined below)
automatically receives an option to purchase 10,000 shares of Common Stock
upon the later of (i) the effective date of this offering and (ii) the date
such Outside Director joins the Board of Directors. Each Outside Director who
has served on the Board of Directors for at least six months shall receive an
option to acquire 5,000 shares of Common Stock on (i) the effective date of
this offering and (ii) the date of each of the Company's annual meetings of
stockholders, provided such Outside Director is re-elected. Each option
granted under the 1998 Director Option Plan will become exercisable ratably
over a four-year period. The term "Outside Directors" refers to directors who
are not employees of the Company, and the term "New Outside Directors" refers
to Outside Directors who join the Board after March 31, 1998. See "Certain
Transactions" for a description of the Company's Consulting Agreement with Mr.
Conrad.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth summary
information concerning compensation paid by the Company during the fiscal year
ended December 31, 1997, to the Company's Chief Executive Officer and the
three other most highly compensated executive officers who earned in excess of
$100,000 in salary and bonus during the fiscal year ended December 31, 1997
(the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------ ----------------------
SECURITIES
NAME AND PRINCIPAL POSITION YEAR SALARY ($) (1) BONUS ($) UNDERLYING OPTIONS (2)
- --------------------------- ---- -------------- --------- ----------------------
<S> <C> <C> <C> <C>
Paul H. Fischer, Ph.D...... 1997 $205,000 $25,000 38,135
President, Chief Executive
Officer and Director
Thomas E. Smart............ 1997 132,900 15,000 27,118
Vice President, Corporate
Development, Corporate
Secretary and Treasurer
Grant Yonehiro............. 1997 105,784 7,500 50,846
Vice President, Product
Management
Imre Kovesdi, Ph.D......... 1997 159,120 -- --
Vice President, Discovery
Research
</TABLE>
- --------
(1) In accordance with the rules of the Securities and Exchange Commission
(the "Commission"), the compensation described in this table does not
include medical, group life insurance or other benefits received by the
Named Executive Officers that are available generally to all salaried
employees of the Company, and certain perquisites and other personal
benefits received by the Named Executive Officers that do not exceed the
lesser of $50,000 or 10% of any such officer's salary and bonus disclosed
in this table.
(2) Issued pursuant to the Amended and Restated 1993 Stock Incentive Plan.
48
<PAGE>
STOCK OPTION GRANTS
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding stock options
granted during the fiscal year ended December 31, 1997, to each of the Named
Executive Officers:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
---------------------------------------------------- ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM (3)
OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------
NAME GRANTED (#) FISCAL 1997 (%)(1) ($/SH) (2) DATE 5% ($) 10% ($)
---- ----------- ------------------ ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Paul H. Fischer, Ph.D... 38,135 24% $4.13 09/17/2007 $ 99,049 $ 251,010
Thomas E. Smart......... 27,118 17 4.13 09/17/2007 70,434 178,494
Grant Yonehiro.......... 23,728 15 3.54 06/30/2007 52,825 133,869
27,118 17 4.13 10/20/2007 70,434 178,494
Imre Kovesdi, Ph.D...... -- -- -- -- -- --
</TABLE>
- --------
(1) Based on options to purchase 158,476 shares granted to employees in fiscal
1997, including the Named Executive Officers. The options were granted
under the Company's Amended and Restated 1993 Stock Incentive Plan.
(2) Represents the fair market value of the underlying Common Stock as
determined by the Board of Directors on the date of grant.
(3) The potential realizable value is calculated based on the term of the
option at its time of grant (ten years) and the per-share market price at
the time of the grant. It is calculated assuming that the stock price on
the date of grant appreciates at the indicated annual rate, compounded
annually for the entire term of the option and that the option is
exercised and sold on the last day of its term for the appreciated stock
price. These amounts represent certain assumed rates of appreciation only,
in accordance with the rules of the Commission, and do not reflect the
Company's estimate or projection of future stock price performance. Actual
gains, if any, are dependent on the actual future performance of the
Company's Common Stock.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END VALUES
The following table sets forth, with respect to each of the Named Executive
Officers, information regarding the number and value of securities underlying
unexercised options held by the named Executive Officers as of December 31,
1997:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES FISCAL YEAR-END(#) FISCAL YEAR-END ($)(1)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Paul H. Fischer, Ph.D... -- -- 98,248 143,269 $1,077,262 $1,393,456
Thomas E. Smart......... -- -- 15,025 61,238 160,500 583,666
Grant Yonehiro.......... -- -- 3,460 50,775 29,272 423,555
Imre Kovesdi, Ph.D...... -- -- 30,964 26,039 353,300 297,104
</TABLE>
- --------
(1) Based on the assumed initial public offering price of $12.00 per share,
less the exercise price.
EMPLOYMENT AGREEMENTS
On March 9, 1995, Paul H. Fischer, the President, Chief Executive Officer
and a director and stockholder of the Company, entered into an employment
agreement with the Company. Should Dr. Fischer's employment be terminated for
any reason other than for cause, his salary will continue to be paid for nine
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<PAGE>
months from the effective date of such termination. These salary payments will
cease if Dr. Fischer becomes permanently employed at the same or a greater
salary during the nine-month period.
On March 9, 1995, Thomas E. Smart, the Vice President of Corporate
Development, entered into an employment agreement with the Company. The
employment agreement provided for the payment of bonuses in cash and in
options to purchase shares of the Company's Common Stock upon the consummation
of certain corporate collaborations. Should Mr. Smart's employment be
terminated for any reason other than for cause, his salary will continue to be
paid for six months from the effective date of such termination. These salary
payments will cease if Mr. Smart becomes permanently employed at the same or
greater salary during the six-month period. Mr. Smart's unvested options to
purchase the Company's Common Stock will fully vest on the date of approval of
a liquidation or change of control of the Company.
On June 6, 1993, Imre Kovesdi, the Vice President of Discovery Research,
entered into an employment agreement with the Company. Should Dr. Kovesdi's
employment be terminated for any reason other than for cause, his salary will
continue to be paid for one year from the effective date of such termination.
These salary payments will cease if Dr. Kovesdi becomes permanently employed
at the same or greater salary during the one-year period.
EQUITY INCENTIVE PLANS
Amended and Restated 1993 Stock Incentive Plan
The Company adopted its 1993 Stock Incentive Plan (the "Stock Plan") in
October 1993, and amended and restated the Stock Plan in October 1997 and
April 1998. An aggregate of 1,846,218 shares of the Common Stock has been
reserved for issuance, which number will be increased each year on the date of
the annual stockholder meeting, by a number of shares equal to (i) the number
of shares needed to restore the maximum aggregate number of shares reserved
for issuance under the Stock Plan to 1,846,218 or (ii) a lesser amount
determined by the Board of Directors. The purposes of the Stock Plan are to
attract and retain the best available personnel to serve the Company and to
provide additional incentive to the Company's key personnel. The Stock Plan
will continue in effect for a term of ten years, unless it is sooner
terminated by the Board.
The Stock Plan permits the grant of options intended to qualify as incentive
stock options ("ISOs") under Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), to employees (including officers and employee
directors), options that do not so qualify ("NSOs," and together with ISOs,
the "Options") to employees (including officers and employee directors) and
consultants (including non-employee directors) and awards of restricted stock.
The Stock Plan is administered by the Board or a committee appointed by the
Board. Subject to limitations set forth in the Stock Plan, the Board has
authority to select the persons to whom Options will be granted, the number of
shares to be converted by each Option, when Options will be granted, and other
terms of Options granted. Options currently granted under the Stock Plan
generally become exercisable at the rate of 12.5% of the shares six months
from the vesting commencement date and approximately 1/48th of the shares
monthly thereafter, such that the Option is fully exercisable four years from
the vesting commencement date.
The maximum term for ISOs granted under the Stock Plan is ten years, except
that if, at the time of the grant, the optionee possesses more than ten
percent of the combined voting power of the Company or of an affiliate (as
defined in the Code) of the Company the maximum term of the ISO is five years.
The exercise price of ISOs must be at least 100% of the fair market value of
the shares subject to the Option on the date of the grant; provided, however,
that if an ISO is granted to a ten percent stockholder, then the exercise
price must be at least 110% of the fair market value of the stock subject to
the Option on the date of the grant. Options granted under the Stock Plan
generally are non-transferrable and expire three months after the termination
of an optionee's service to the Company.
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<PAGE>
In addition, in the event of a Change of Control (as defined below), Options
held by employees, advisors or consultants of the Company or members of the
Board of Directors at the time of a Change of Control become immediately
exercisable in full and the restrictions applicable to restricted stock of
employees, advisors or consultants of the Company or members of the Board of
Directors at the time of a change of control lapse immediately. Upon a Change
of Control, the Board of Directors may take whatever action it deems desirable
with respect to outstanding Options, including accelerating the expiration or
termination date no earlier than 30 days after notice of such acceleration is
given to the optionees. A "Change of Control" is deemed to have occurred upon
the earliest to occur of the following events: (i) the date the stockholders
of the Company (or the Board of Directors, if stockholder action is not
required) approve a plan or other arrangement pursuant to which the Company
will be dissolved or liquidated; (ii) the date the stockholders of the Company
(or the Board of Directors, if stockholder action is not required) approve a
definitive agreement to sell or otherwise dispose of substantially all of the
assets of the Company; (iii) the date the stockholders of the Company (or the
Board of Directors, if stockholder action is not required) and the
stockholders of the other constituent corporation (or its board of directors
if stockholder action is not required) have approved a definitive agreement to
merge or consolidate the Company with or into such other corporation, other
than, in either case, a merger or consolidation of the Company in which
holders of shares of the Company's Common Stock immediately prior to the
merger or consolidation will have at least a majority of the ownership of
common stock of the surviving corporation (and, if one class of common stock
is not the only class of voting securities entitled to vote on the election of
directors of the surviving corporation, a majority of the voting power of the
surviving corporation's voting securities) immediately after the merger or
consolidation, which common stock (and, if applicable, voting securities) is
to be held in the same proportion as such holders' ownership of Common Stock
of the Company immediately before the merger or consolidation; (iv) the date
any entity, person or group, within the meaning of Section 13(d)(3) or Section
14(d)(2) of the Securities Exchange Act of 1934, as amended, other than the
Company or any of its subsidiaries or any employee benefit plan (or related
trust) sponsored or maintained by the Company or any of its subsidiaries, or
any person who does not conduct any active trade or business shall have become
the beneficial owner of, or shall have obtained voting control over, more than
fifty percent (50%) of the outstanding shares of the Company's Common Stock;
or (v) the date that fewer than a majority of the Board of Directors are
Incumbent Directors (as defined below). "Incumbent Directors" means directors
who either (x) are directors of the Company as of the effective date of the
Stock Plan or (y) are elected, or nominated for election to the Board of
Directors with the affirmative votes of at least a majority of those directors
whose election or nomination was not in connection with any transaction
described in subsection (i) to (iv) or in connection with an actual or
threatened proxy contest relating to the election of directors of the Company.
1998 Employee Stock Purchase Plan
In April 1998, the Company adopted the 1998 Employee Stock Purchase Plan
(the "Purchase Plan") covering an aggregate of 350,000 shares of Common Stock.
The number of shares reserved will be increased automatically each year on the
date of the Company's annual stockholder meeting by an amount equal to (i) the
number of shares needed to restore the maximum number of shares reserved for
issuance under the Purchase Plan to 350,000 shares or (ii) a lesser amount
determined by the Board of Directors. The Purchase Plan is intended to qualify
as an employee stock purchase plan within the meaning of Section 423 of the
Code. Under the Purchase Plan, the Board may authorize participation by
eligible employees, including officers, in periodic offerings following the
commencement of the Purchase Plan. The initial offering under the Purchase
Plan will commence on the date of this Prospectus and terminate on April 30,
2000.
Unless otherwise determined by the Board, employees are eligible to
participate in the Purchase Plan only if they are employed by the Company or a
subsidiary of the Company designated by the Board for at least 20 hours per
week and are customarily employed by the Company or a subsidiary of the
Company designated by the Board for at least five months per calendar year.
Employees who participate in a offering may have up to ten percent of their
earnings withheld pursuant to the Purchase Plan. The amount withheld is then
used to purchase shares of the Common Stock on specified dates determined by
Board. The price of
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<PAGE>
Common Stock purchased under the Purchase Plan will be equal to 85% of the
lower of the fair market value of the Common Stock at the commencement date of
each offering or the relevant purchase date. Employees may end their
participation in this offering at any time during this offering, and
participation ends automatically on termination of employment with the
Company.
In the event of a merger, reorganization, consolidation or liquidation
involving the Company, the Board has the discretion to provide that each right
to purchase Common Stock will be assumed or an equivalent right substituted by
the successor corporation or the Board may shorten this offering, and provide
for all sums collected by payroll deductions to be applied to purchase stock
immediately prior to such merger or other transaction. The Board has the
authority to amend or terminate the Purchase Plan, provided, however, that no
such action may adversely affect any outstanding rights to purchase Common
Stock.
1998 Director Option Plan
In April 1998, the Company adopted the 1998 Director Option Plan (the
"Director Plan") to provide for the automatic grant of options to purchase
shares of Common Stock to non-employee directors of the Company.
The maximum number of shares of Common Stock that may be issued pursuant to
options granted under the Director Plan is 130,000. Each New Outside Director
is automatically granted on the later of (i) the effective date of this
offering and (ii) the date such Outside Director joins the Board of Directors
an option to purchase 10,000 shares of Common Stock. In addition, each Outside
Director who has served on the Board of Directors for at least six months
shall receive an option to purchase 5,000 shares of Common Stock on (i) the
effective date of this offering and (ii) the date of each of the Company's
annual meetings of stockholders, provided such Outside Director is re-elected
as a director at such meeting. Each option granted under the Director Plan has
a term of ten years. The options vest over a four-year period, with an
exercise price per share equal to 100% of the fair market value per share on
the date of the grant. Options granted under the Director Plan are generally
non-transferrable. Unless otherwise terminated by the Board of Directors, the
Director Plan terminates automatically in April 2008. On the effective date of
this offering, options to purchase an aggregate of 30,000 shares of Common
Stock will be granted under the Director Plan, with an exercise price equal to
the initial public offering price per share. Upon a Change of Control (as
defined in the Stock Plan), options held by directors shall become immediately
exercisable in full.
401(K) PLAN
The Company has established a tax-qualified employee savings and retirement
plan. Employees must be 21 years old to participate and are eligible on the
first day of the quarter following six months as an employee of the Company.
All amounts contributed by employee participants and earnings on these
contributions are fully vested at all times. Employee participants may elect
to invest their contributions in various established funds.
LIMITATIONS OF DIRECTORS' AND EXECUTIVE OFFICERS' LIABILITY AND
INDEMNIFICATION
The Company's Restated Certificate provides that directors of the Company
will not be personally liable to the Company or its stockholders for monetary
damages for any breach of fiduciary duty as a Director, except to the extent
that such exemption from liability or limitation thereof is not permitted by
the Delaware General Corporation Law as currently in effect or as the same as
subsequently amended. Such limitation of liability does not apply to
liabilities arising under the federal securities laws and does not affect the
availability of equitable remedies such as injunctive relief or rescission.
The Company's Amended and Restated Bylaws empower the Company to indemnify
its directors, officers, employees and agents to the fullest extent permitted
by law. Pursuant to this provision, the Company has entered into
indemnification agreements with each of its Directors and Executive Officers.
52
<PAGE>
CERTAIN TRANSACTIONS
CERTAIN TRANSACTIONS
In September 1995, the Company entered a Second Class C Preferred Stock
Purchase Agreement with Canaan S.B.I.C., L.P., Canaan Capital Limited
Partnership, Canaan Capital Offshore L.P., C.V. (collectively, "Canaan") and
The CIT Group/Venture Capital, Inc. ("The CIT Group"), among others, pursuant
to which Canaan purchased 305,084 shares of Class C Preferred Stock for $1.8
million, and The CIT Group purchased 338,983 shares of Class C Preferred Stock
for $2.0 million. Canaan is affiliated with Harry T. Rein, a director of the
Company. Bruce Schackman, a former director of the Company, is affiliated with
the CIT Group.
Each series of the Company's Preferred Stock has certain conversion rights
and protection against certain dilutive issuances of securities by the
Company. Each holder of Preferred Stock is entitled to one vote for each share
held. Holders of Preferred Stock are also entitled to certain preferences over
holders of Common Stock with respect to dividends and in certain liquidation
events. Certain holders of Common Stock and Preferred Stock are entitled to
certain registration rights with respect to such Common Stock and shares of
Common Stock issued upon the conversion thereof. See "Description of Capital
Stock--Registration Rights."
In July 1997, the Company and Warner-Lambert entered a Stock Purchase
Agreement pursuant to which Warner-Lambert is obligated to purchase up to an
aggregate of $25.0 million of the Company's securities. Concurrently, the
Company and Warner-Lambert entered a Research, Development and Collaboration
Agreement. Wendell Wierenga, a director of the Company, is affiliated with
Warner-Lambert. See "Business--Strategic Alliances--Corporate Collaborations--
Warner-Lambert Company."
The Company has entered employment agreements with certain of its executive
officers. See "Management--Employment Agreements" for a description of the
employment agreements with Dr. Fischer, Mr. Smart and Dr. Kovesdi.
The Company entered a consulting agreement with Mr. Conrad, Chairman of the
Company's Board of Directors, on April 28, 1998. Pursuant to the agreement,
Mr. Conrad will be available to the Company for a minimum of five and up to
ten business days per month, and in exchange will receive $1,500 per day. The
agreement has a one-year term, and is renewable.
The Company has granted options to certain of its directors and executive
officers. The Company has also entered into an indemnification agreement with
each of its directors and executive officers.
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions between the Company and
its officers, directors, principal stockholders and their affiliates will be
approved by a majority of the Board of Directors, including a majority of the
disinterested directors and will continue to be on terms no less favorable to
the Company than could be obtained from unaffiliated third parties.
53
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to the Company with respect
to the beneficial ownership of its Common Stock as of March 31, 1998, and as
adjusted to reflect the sale of Common Stock offered by the Company hereby for
(i) each person who is known by the Company to own beneficially more than five
percent of the Common Stock; (ii) each of the Company's directors; (iii) each
Named Executive Officer and (iv) all directors and executive officers as a
group.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED(2)
SHARES ------------------------
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS (1) OWNED(2) OFFERING OFFERING
-------------------- ------------ ---------- ----------
<S> <C> <C> <C>
Hillman Medical Ventures
Partnerships (3)................. 1,101,693 15.68% 11.18%
c/o Rock Hill Ventures, Inc.
One Tower Bridge, Suite 1350
100 Front Street
West Conshohocken, PA 19428
Attention: Hal S. Broderson, M.D.
Biotech Growth SA................. 847,457 12.06 8.60
Bellevue Asset Management, AG
Grasenweg 4
Zug/Postach, Zug-6301
Switzerland
Attention: Andreas Bremer, Ph.D.
Genentech, Inc.................... 734,576 10.46 7.45
One DNA Way
South San Francisco, CA 94080
Prince Venture Partners, III,
L.P.............................. 550,846 7.84 5.59
25 Ford Road
Westport, CT 06880
Attention: Gregory Zaic
Sierra Ventures, III, L.P. (4).... 550,846 7.84 5.59
3000 Sand Hill Road
Building 4, Suite 210
Menlo Park, CA 94025
Attention: Petri Vainio, M.D.,
Ph.D.
Warner-Lambert Company............ 349,853 4.98 6.93 (5)
201 Tabor Road
Morris Plains, NJ 07950
Herbert J. Conrad (6)............. 33,929 * *
Ronald J. Brenner, Ph.D. (7)...... 1,101,693 15.68 11.18
Hal S. Broderson, M.D. (7)........ 1,101,693 15.68 11.18
Thomas S. Porter (8).............. 286,397 4.08 2.91
Harry T. Rein (9)................. 305,084 4.34 3.09
Gregory F. Zaic (10).............. 550,846 7.84 5.59
Paul H. Fischer, Ph.D. (11)....... 137,176 1.92 1.37
Thomas E. Smart (12).............. 65,448 * *
Imre Kovesdi, Ph.D. (13).......... 60,872 * *
Grant Yonehiro (14)............... 16,665 * *
All directors and executive
officers as a group (11 persons)
(15)............................. 2,558,110 35.30% 25.38%
</TABLE>
54
<PAGE>
- --------
* Represents beneficial ownership of less than one percent.
(1) Unless otherwise indicated, the address of each of the named individuals
is: c/o GenVec, Inc., 12111 Parklawn Drive, Rockville, Maryland 20852.
(2) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect
to securities. Except as indicated by footnote, and subject to community
property laws where applicable, the persons named in the table above have
sole voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by them. Percentage of beneficial
ownership is based on 7,024,451 shares of Common Stock outstanding as of
March 31, 1998, and 9,857,784 shares of Common Stock after completion of
this offering including 333,333 shares to issued to Warner-Lambert upon
closing of this offering. Amounts shown in the above table and the
following notes include shares issuable within the 60-day period
following March 31, 1998, pursuant to the exercise of options.
(3) Includes 84,745 shares owned by Hillman Medical Ventures 1992 L.P.,
508,474 shares owned by Hillman Medical Ventures 1993 L.P., and 508,474
shares owned by Hillman Medical Ventures 1994 L.P. The general partners
of the Hillman Medical Ventures partnerships are Cashon Biomedical
Associates L.P. ("Cashon") and Hillman/Dover Limited Partnership
('"Hillman/Dover"). The general partners of Cashon are Hal S. Broderson,
Ronald J. Brenner and Charles G. Hadley (the "Cashon General Partners").
The general partner of Hillman/Dover is a wholly-owned subsidiary of The
Hillman Company, a firm engaged in diversified investments and
operations. The Hillman Company is controlled by Henry L. Hillman, Elsie
Hilliard Hillman and C.G. Grefenstette, Trustees (the "Trustees") of the
Henry L. Hillman Trust. The Cashon General Partners and the Trustees may
be deemed to be the beneficial owners of the 1,101,693 shares owned by
the Hillman Medical Ventures partnerships.
(4) Includes 21,207 shares held by Sierra Ventures International IV, L.P. and
529,639 shares held by Sierra Ventures IV, L.P.
(5) Adjusted to reflect the sale of 333,333 additional shares to Warner-
Lambert concurrently with the closing of this offering.
(6) Includes 28,528 shares subject to options exercisable within the 60-day
period following March 31, 1998.
(7) Includes 84,745 shares owned by Hillman Medical Ventures 1992 L.P.,
508,474 shares owned by Hillman Medical Ventures 1993 L.P. and 508,474
shares owned by Hillman Medical Ventures 1994 L.P. The general partners
of the Hillman Medical Ventures partnerships are Cashon Biomedical
Associates L.P. ("Cashon") and Hillman/Dover Limited Partnership
("Hillman/Dover"). The general partners of Cashon are Hal S. Broderson,
Ronald J. Brenner and Charles G. Hadley (the "Cashon General Partners").
The general partner of Hillman/Dover is a wholly-owned subsidiary of The
Hillman Company, a firm engaged in diversified investments and
operations. The Hillman Company is controlled by Henry L. Hillman, Elsie
Hillard Hillman and C.G. Grefenstette, Trustees (the "Trustees") of the
Henry L. Hillman Trust. The Cashon General Partners and the Trustees may
be deemed to be the beneficial owners of the 1,101,693 shares owned by
the Hillman Medical Ventures partnerships.
(8) Includes 286,397 shares held by Enterprise Development Fund, L.P., as to
which Mr. Porter disclaims beneficial ownership.
(9) Includes 16,322 shares held by Canaan Capital, L.P., 136,220 shares held
by Canaan Capital Offshore L.P., C.V. and 152,542 shares held by Canaan
S.B.I.C., L.P., as to which Mr. Rein disclaims beneficial ownership.
(10) Includes 550,846 shares held by Prince Venture Partners III, L.P., as to
which Mr. Zaic disclaims beneficial ownership.
(11) Includes 124,465 shares subject to options exercisable within the 60-day
period following March 31, 1998.
(12) Includes 23,076 shares subject to options exercisable within the 60-day
period following March 31, 1998, and 4,837 shares subject to repurchase
by the Company within such period.
(13) Includes 37,373 shares subject to options exercisable within the 60-day
period following March 31, 1998.
(14) Includes 9,886 shares subject to options exercisable within the 60-day
period following March 31, 1998, and 1,271 shares subject to repurchase
by the Company within such period.
(15) Includes 223,328 shares subject to options exercisable within the 60-day
period following March 31, 1998, and 6,108 shares subject to repurchase
by the Company within such period.
55
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company will consist of 50,000,000
shares of Common Stock and 5,000,000 shares of Preferred Stock after giving
effect to the proposed Reverse Split, the conversion of all outstanding shares
of Preferred Stock into Common Stock and the restatement of the Company's
Certificate of Incorporation upon the closing of this offering.
The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and
qualified in its entirety by, the provisions of the Company's Restated
Certificate which is included as an exhibit to the Registration Statement of
which this Prospectus is a part, and by the provisions of applicable law.
COMMON STOCK
As of March 31, 1998, there were 7,024,451 shares of Common Stock
outstanding which were held of record by 82 stockholders, on a pro forma basis
to reflect the proposed Reverse Split and the conversion of all outstanding
shares of Preferred Stock which will occur upon the closing of this offering.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may
be applicable to any outstanding Preferred Stock, the holders of Common Stock
are entitled to receive ratably such dividends, if any, as may be declared
from time to time by the Board of Directors out of funds legally available for
that purpose. See "Dividend Policy." In the event of a liquidation,
dissolution or winding up of the Company, the holders of Common Stock are
entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior distribution rights of Preferred Stock, if any,
then outstanding. The Common Stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are
fully paid and non-assessable, and the shares of Common Stock to be issued
upon the closing of this offering will be fully paid and non-assessable.
PREFERRED STOCK
Effective upon the closing of this offering, the Company will be authorized
to issue 5,000,000 shares of undesignated Preferred Stock, none of which will
be outstanding upon the closing of this offering. The Board of Directors will
have the authority, without further action by the stockholders, to issue the
undesignated Preferred Stock in one or more series, to fix the rights,
preferences, privileges and restrictions granted to or imposed upon any wholly
unissued shares of undesignated Preferred Stock and to fix the number of
shares constituting any series and the designation of such series.
The issuance of Preferred Stock may have the effect of delaying, deferring
or preventing a change in control of the Company without further action by the
stockholders, may discourage bids for the Company's Common Stock at a premium
over the market price of the Common Stock and may adversely affect the market
price of and the voting and other rights of the holders of Common Stock. At
present, the Company has no plans to issue any of the Preferred Stock.
WARRANTS
As of March 31, 1998, the Company had outstanding (i) a warrant to purchase
211,864 shares of Common Stock at $13.28 per share expiring in May 2001, or,
if the Company has not effected an initial public offering by May 31, 1998,
upon the fifth anniversary of the initial public offering, but not later than
May 31, 2006; (ii) a warrant to purchase 67,796 shares of Common Stock at
$14.75 per share expiring in May 2001, or, if the Company has not effected an
initial public offering by June 30, 1998, on the third anniversary of the
initial public offering but not later than June 30, 2006; (iii) a warrant to
purchase 16,949 shares of Common Stock at $5.90 per share expiring in
September 2006 and (iv) warrants to purchase 23,807 shares of Common Stock at
$5.90 per share expiring upon the later of October 17, 2005 and five years
from the effective date of the
56
<PAGE>
Company's initial public offering. The shares underlying certain of these
warrants are entitled to registration rights.
REGISTRATION RIGHTS
The holders of 6,375,891 shares of Common Stock and warrants to purchase
211,864 shares of Common Stock (the "Registrable Securities") or certain of
their transferees are entitled to certain rights with respect to the
registration of the Registrable Securities under the Securities Act. These
rights are provided under the terms of an agreement between the Company and
the holders of Registrable Securities. Subject to certain limitations in the
agreement, the holders of the Registrable Securities may require, on three
occasions beginning 180 days following the date of this Prospectus, that the
Company use its best efforts to register the Registrable Securities for public
resale. If the Company registers any of its Common Stock either for its own
account or for the account of other security holders, the holders of
Registrable Securities and holders of an additional 505,809 shares of the
Common Stock are entitled to include their shares of Common Stock in the
registration, subject to the ability of the underwriters to limit the number
of shares included in the offering. Certain holders of Registrable Securities
may also require the Company to register all or a portion of their Registrable
Securities on Form S-3 when use of such form becomes available to the Company.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
The Company is governed by the provisions of Section 203 of the Delaware
Law. In general, Section 203 prohibits a public Delaware corporation from
engaging in "business combinations" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved
in a prescribed manner. A "business combination" includes mergers, asset sales
or other transactions resulting in a financial benefit to a stockholder, and
an "interested stockholder" is a person who, together with affiliates and
associates owns (or within three years, did own) 15% or more of the
corporation's voting stock. The existence of this provision would be expected
to have anti-takeover effects with respect to transactions not approved in
advance by the Board of Directors, such as discouraging takeover attempts that
might result in a premium over the market price of the Common Stock.
Certain provisions of the Company's Restated Certificate and Amended and
Restated Bylaws may have the effect of preventing, discouraging or delaying a
change in the control of the Company and may maintain the incumbency of the
Board of Directors and management. The authorization of undesignated Preferred
Stock makes it possible for the Board of Directors to issue Preferred Stock
with voting or other rights or preferences that could impede the success of
any attempt to change control of the Company. In addition, the Company's
Amended and Restated Bylaws limit the ability of stockholders of the Company
to raise matters at a meeting of stockholders without giving advance notice.
The Restated Certificate provides that stockholder action can be taken only
at an annual or special meeting of stockholders and cannot be taken by written
consent in lieu of a meeting. The Amended and Restated Bylaws provide that,
except as otherwise required by law, special meetings of the stockholders can
only be called by the Board of Directors, by the President of the Company, or
by stockholders holding a majority of the shares outstanding and entitled to
vote.
The Amended and Restated Bylaws establish an advance notice procedure for
stockholder proposal to be brought before an annual meeting of stockholders of
the Company, including proposed nominations of persons for election to the
Board of Directors. Stockholders at an annual meeting may only consider
proposals or nominations specified in the notice of meeting or brought before
the meeting by or at the direction of the Board of Directors or by a
stockholder who was a stockholder of record on the record date for the
meeting, who is entitled to vote at the meeting and who has given to the
Company's Secretary timely written notice, in proper form, of the
stockholder's intention to bring that business before the meeting. Although
the Amended
57
<PAGE>
and Restated Bylaws do not give the Board of Directors the power to approve or
disapprove stockholder nominations of candidates or proposals regarding other
business to be conducted at a special or annual meeting, the Amended and
Restated Bylaws may have the effect of precluding the conduct of certain
business at a meeting if the proper procedures are not followed or may
discourage or defer a potential acquiror from conducting a solicitation of
proxies to elect its own slate of directors or otherwise attempting to obtain
control of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Chase Mellon
Shareholder Services, L.L.C.
58
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Common Stock
of the Company. Future sales of substantial amounts of Common Stock in the
public market could adversely affect prevailing market prices. Furthermore,
since only a limited number of shares will be available for sale shortly after
the offering because of certain contractual and legal restrictions on resale
described below, sales of substantial amounts of Common Stock of the Company
in the public market after restrictions lapse could adversely affect the
prevailing market price and the ability of the Company to raise equity capital
in the future.
Upon completion of the offering, the Company will have 9,857,784 shares of
Common Stock outstanding, assuming no exercise of currently outstanding
options. Of these shares, the 2,500,000 shares sold in this offering (plus any
additional shares sold upon exercise of the Underwriters' over-allotment
option) will be freely transferable without restriction under the Securities
Act, unless they are held by "affiliates" of the Company as that term is used
under the Securities Act and the regulations promulgated thereunder
("Affiliates"). The remaining 7,357,784 shares of Common Stock held by
existing stockholders are "restricted securities" as that term is defined in
Rule 144 of the Securities Act (the "Restricted Shares"). Restricted Shares
may be sold in the public market only if registered or if they qualify for an
exemption from registration under Rule 144 or Rule 701 under the Securities
Act. As a result of contractual restrictions and the provisions of Rules 144
and 701, additional shares will be available for sale in the public market as
follows: (i) 49,748 Restricted Shares will be eligible for immediate sale on
the date of this Prospectus; (ii) 76,658 Restricted Shares will be eligible
for sale 90 days after the date of this Prospectus and (iii) 7,231,378
Restricted Shares will be eligible for sale 180 days from the date of this
Prospectus upon expiration of their respective holding periods under Rule 144.
In addition, 10,751 shares will be eligible for immediate sale on the date of
this Prospectus upon exercise of vested stock options, and 765,639 shares will
be issuable upon exercise of vested stock options 180 days after the effective
date of this offering upon the expiration of lock-up agreements.
The holders of 6,375,891 shares of Common Stock and the holders of warrants
to purchase 211,864 shares of Common Stock have the right in certain
circumstances to require the Company to register their shares under the
Securities Act for resale to the public beginning 180 days from the date of
this Prospectus. If such holders, by exercising their demand registration
rights, cause a large number of shares to be registered and sold in the public
market, such sales could have an adverse effect on the market price for the
Company's Common Stock. If the Company were required to include in a Company-
initiated registration shares held by such holders and holders of an
additional 505,809 shares of Common Stock pursuant to the exercise of their
piggyback registration rights, such sales may have an adverse affect on the
Company's ability to raise new capital.
In addition, the Company expects to file a registration statement on Form S-
8 registering a total of 2,326,218 shares of Common Stock subject to
outstanding stock options or reserved for issuance under the Company's equity
incentive plans. The Form S-8 registration statement is expected to be filed
and to become effective 180 days following the effective date of this
offering. Shares registered under such registration statement will be
available for sale in the open market, subject to Rule 144 value limitations
applicable to Affiliates, unless such shares are subject to vesting
restrictions with the Company.
In general, under Rule 144 as currently in effect, beginning 90 days after
the effective date of the offering, an Affiliate of the Company or person (or
persons whose shares are aggregated) who has beneficially owned restricted
shares (as defined under Rule 144) for at least one year is entitled to sell
within any three-month period a number of shares that does not exceed the
greater of (i) one percent of the then outstanding shares of the Company's
Common Stock or (ii) the average weekly trading volume of the Company's Common
Stock in the Nasdaq National Market during the four calendar weeks immediately
preceding the date on which the notice of the sale is filed with the
Commission. Sales pursuant to Rule 144 are subject to certain requirements
relating to the manner of sale, notice, and availability of current public
information about the
59
<PAGE>
Company. A person (or persons whose shares are aggregated) who is not an
Affiliate of the Company at any time during the 90 days immediately preceding
the sale, and who has beneficially owned restricted shares for at least two
years is entitled to sell such shares under Rule 144(k) without regard to the
limitations described above.
An employee, officer or director of the Company or a consultant to the
Company who purchased or was awarded shares or options to purchase shares
pursuant to a written compensatory plan or contract is entitled to rely on the
resale provisions of Rule 701 of the Securities Act, which permit Affiliates
and non-Affiliates to sell their Rule 701 shares without having to comply with
holding period restrictions of Rule 144, in each case commencing 90 days after
the date of this Prospectus. In addition, non-Affiliates may sell Rule 701
shares without complying with the public information, volume and notice
provisions of Rule 144.
60
<PAGE>
UNDERWRITING
The Underwriters named below, acting through their representatives,
BancAmerica Robertson Stephens, J.P. Morgan Securities Inc. and Donaldson,
Lufkin & Jenrette Securities Corporation (the "Representatives"), have
severally agreed, subject to the terms and conditions of the Underwriting
Agreement, to purchase from the Company the number of shares of Common Stock
set forth opposite their respective names below. The Underwriters are
committed to purchase and pay for all such shares, if any are purchased.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
BancAmerica Robertson Stephens................................
J.P. Morgan Securities Inc....................................
Donaldson, Lufkin & Jenrette Securities Corporation...........
---------
Total....................................................... 2,500,000
=========
</TABLE>
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the initial
public offering price set forth on the cover page of this Prospectus and to
certain dealers at such price, less a concession of not more than $ per
share, of which $ per share may be reallowed to other dealers. After the
initial public offering, the public offering price, concession and
reallowances to dealers may be reduced by the Representatives.
The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to an
additional 375,000 shares of Common Stock at the same price per share as the
Company will receive for the 2,500,000 shares that the Underwriters have
agreed to purchase. To the extent that the Underwriters exercise such option,
each of the Underwriters will have a firm commitment to purchase approximately
the same percentage of such additional shares that the number of shares of
Common Stock to be purchased by it shown in the above table represents as a
percentage of 2,500,000 shares offered hereby. If purchased, such additional
shares will be sold by the Underwriters on the same terms as those on which
the 2,500,000 shares are being sold. The Company will be obligated, pursuant
to such option, to sell shares to the Underwriters to the extent such option
is exercised. The Underwriters may exercise such option only to cover over-
allotments made in connection with the sale of shares of Common Stock offered
hereby.
The Underwriting Agreement contains covenants of indemnity between the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act and liability arising from breaches of
representations and warranties contained in the Underwriting Agreement.
Each officer and director of the Company and certain stockholders, together
holding approximately 98.3% of the shares of Common Stock outstanding
immediately prior to the closing of the offering, have agreed with the
Representatives that, until 180 days from the date of this Prospectus, subject
to certain limited exceptions, they will not, directly or indirectly, sell,
offer, contract to sell, pledge, grant any option to purchase or otherwise
dispose of any shares of Common Stock (or any securities convertible into, or
exchangeable for, or any rights to purchase or acquire, shares of Common
Stock), held by such holders, acquired by such holder after the date hereof or
which may be deemed to be beneficially owned by such holder, without the prior
written consent of BancAmerica Robertson Stephens. Approximately 7,231,378 of
such shares will be eligible for immediate public sale following expiration of
the lock-up period and their respective holding periods under Rule 144.
BancAmerica Robertson Stephens may, in its sole discretion without notice,
release all or any portion of the securities subject to the lock-up
agreements. In addition, the Company has agreed that, until 180 days from the
date of this Prospectus, the Company will not, without the prior written
consent of BancAmerica Robertson Stephens, subject to certain limited
exceptions, sell or otherwise dispose of, any shares of Common Stock, any
options or warrants to purchase any shares of Common Stock (or any securities
61
<PAGE>
convertible into, exercisable for or exchangeable for shares of Common Stock)
other than the Company's sale of shares in this offering, the issuance of
Common Stock upon the exercise of outstanding options, or the Company's grant
of options and issuance of stock under existing stock option or stock purchase
plans, or the shares to be sold to Warner-Lambert concurrent with this
offering or otherwise pursuant to the Company's existing agreement with
Warner-Lambert. See "Shares Eligible for Future Sale."
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to accounts over which they exercise discretionary
authority.
The Representatives have advised the Company that, pursuant to Regulation M
under the Securities Act, certain persons participating in this offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, which may have the effect of
stabilizing or maintaining the market price of the Common Stock at a level
above that which might otherwise prevail in the open market. A "stabilizing
bid" is a bid for or the purchase of the Common Stock on behalf of the
Underwriters for the purpose of fixing or maintaining the price of the Common
Stock. A "syndicate covering transaction" is the bid for or the purchase of
the Common Stock on behalf of the Underwriters to reduce a short position
incurred by the Underwriters in connection with this offering. A "penalty bid"
is an arrangement permitting the Representatives to reclaim the selling
concession otherwise accruing to an Underwriter or syndicate member in
connection with this offering if the Common Stock originally sold by such
Underwriter or syndicate member is purchased by the Representatives in a
syndicate covering transaction and has therefore not been effectively placed
by such Underwriter or syndicate member. The Representatives have advised the
Company that such transactions may be effected on the Nasdaq National Market
or otherwise and, if commenced, may be discontinued at any time.
Prior to this offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock will be determined through negotiations between the Company and the
Representatives. The material factors to be considered in such negotiations
are prevailing market conditions, certain financial information of the Company
in recent periods, market valuations of other companies that the Company and
the Representatives believe to be comparable to the Company, estimates of the
business potential of the Company, the present state of the Company's
development, the Company's management and other factors deemed relevant. The
estimated initial public offering price range set forth on the cover of this
preliminary prospectus is subject to change as a result of market conditions
and other factors. There can be no assurance that an active or orderly trading
market will develop for the Common Stock or that the Common Stock will trade
in the public market subsequent to this offering at or above the initial
trading price. See "Risk Factors--No Prior Public Market for the Common Stock;
Potential Volatility of Stock Price" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California. Certain legal matters will be passed upon
for the Underwriters by Testa, Hurwitz & Thibeault, LLP, Boston,
Massachusetts.
EXPERTS
The financial statements of the Company as of December 31, 1996 and 1997,
and for each of the years in the three-year period ended December 31, 1997,
have been included herein and in the registration statement in reliance upon
the report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein and upon the authority of said firm as experts in
accounting and auditing.
62
<PAGE>
Certain statements included in this Prospectus under the captions "Risk
Factors--Intellectual Property", "Business--GenVec Strategy", and "Business--
Intellectual Property" have been reviewed and approved by Leydig, Voit &
Mayer, Ltd., patent counsel for the Company, as experts on such matters.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the shares of Common Stock
offered hereby. As permitted by the rules and regulations of the Commission,
this Prospectus, which is a part of the Registration Statement, omits certain
information, exhibits, schedules and undertakings set forth in the
Registration Statement. For further information pertaining to the Company and
the Common Stock offered hereby, reference is made to such Registration
Statement and the exhibits and schedules thereto. Statements contained in this
Prospectus as to the contents or provisions of any contract or other document
referred to herein 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 may be
inspected without charge at the office of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's regional offices located
at the Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York,
New York 10048. Copies of all or any part of the Registration Statement may be
obtained from such offices upon the payment of the fees prescribed by the
Commission. In addition, registration statements and certain other filings
made with the Commission through its Electronic Data Gathering, Analysis and
Retrieval ("EDGAR") system are publicly available through the Commission's web
site on the Internet's World Wide Web, located at http://www.sec.gov. The
Registration Statement, including all exhibits thereto and amendments thereof,
has been filed with the Commission through EDGAR.
63
<PAGE>
GENVEC, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of KPMG Peat Marwick LLP, Independent Auditors..................... F-2
Balance Sheets at December 31, 1996 and 1997 and March 31, 1998
(unaudited).............................................................. F-3
Statements of Operations for the years ended December 31, 1995, 1996 and
1997 and the three months ended March 31, 1997 (unaudited) and 1998
(unaudited).............................................................. F-4
Statements of Stockholders' Equity for the three years in the period ended
December 31, 1997 and the three months ended March 31, 1998 (unaudited).. F-5
Statements of Cash Flows for the years ended December 31, 1995, 1996 and
1997 and the three months ended March 31, 1997 (unaudited) and 1998
(unaudited).............................................................. F-6
Notes to Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE>
When the events referred to in Note 10 of the Notes to the Financial
Statements have been consummated, we will be in a position to render the
following report.
/s/ KPMG Peat Marwick LLP
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
GenVec, Inc.:
We have audited the accompanying balance sheets of GenVec, Inc. as of
December 31, 1996 and 1997, and the related statements of operations,
stockholders' equity, and cash flows for each of the years in the three-year
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. 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 GenVec, Inc. as of
December 31, 1996 and 1997, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1997,
in conformity with generally accepted accounting principles.
McLean, Virginia
March 6, 1998, except for Note 10
which is as of May , 1998
F-2
<PAGE>
GENVEC, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- PRO FORMA
1996 1997 MARCH 31, 1998 MARCH 31, 1998
------------ ----------- -------------- --------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents............. $ 5,146,226 $ 6,786,390 $ 4,694,205 $ 4,694,205
Short-term investments
(note 3)................ 2,579,124 2,577,990 2,567,866 2,567,866
Accounts receivable...... -- -- 2,000,000 2,000,000
Prepaid expenses......... 164,928 410,826 341,388 341,388
Other current assets..... 103,712 135,715 293,379 293,379
------------ ----------- ----------- -----------
Total current assets.... 7,993,990 9,910,921 9,896,838 9,896,838
------------ ----------- ----------- -----------
Property and equipment
(note 6):
Equipment................ 1,566,091 1,995,004 2,240,553 2,240,553
Leasehold improvements... 176,311 198,933 226,744 226,744
Furniture and fixtures... 58,256 82,481 90,814 90,814
------------ ----------- ----------- -----------
1,800,658 2,276,418 2,558,111 2,558,111
Less: accumulated
depreciation and
amortization............ (1,194,228) (1,678,562) (1,800,612) (1,800,612)
------------ ----------- ----------- -----------
Net property and
equipment.............. 606,430 597,856 757,499 757,499
------------ ----------- ----------- -----------
Other assets.............. 37,950 37,950 37,950 37,950
------------ ----------- ----------- -----------
Total assets............ $ 8,638,370 $10,546,727 $10,692,287 $10,692,287
============ =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......... $ 264,011 $ 387,150 $ 193,622 $ 193,622
Accrued expenses......... 252,509 252,891 419,396 419,396
Accrued technological
license and
intellectual property
expenses................ 439,466 920,484 1,177,478 1,177,478
Accrued payroll and
related expenses........ 245,843 94,341 91,783 91,783
Current portion of
capital lease
obligation (note 6)..... 414,529 174,611 131,386 131,386
------------ ----------- ----------- -----------
Total current
liabilities............ 1,616,358 1,829,477 2,013,665 2,013,665
------------ ----------- ----------- -----------
Capital lease obligation,
less current portion
(note 6).................... 157,729 46,563 26,273 26,273
Other non-current
liabilities.............. -- 26,500 13,250 13,250
------------ ----------- ----------- -----------
Total non-current
liabilities............ 157,729 73,063 39,523 39,523
------------ ----------- ----------- -----------
Commitments (note 6)
Stockholders' equity
(notes 5 and 7):
Convertible preferred
stock, $.001 par value:
Class A, 226,099 shares
authorized, issued and
outstanding
(liquidation preference
of $667,000) at
December 31, 1996 and
1997, and March 31,
1998 (no shares
authorized, issued and
outstanding pro
forma)................. 226 226 226 --
Class B, 2,000,079
shares authorized, and
1,918,688 shares issued
and outstanding
(liquidation preference
of $11,320,314) at
December 31, 1996 and
1997, and March 31,
1998 (no shares
authorized, issued and
outstanding pro
forma)................. 1,919 1,919 1,919 --
Class C, 3,570,332
shares authorized,
issued and outstanding
(liquidation preference
of $21,065,000) at
December 31, 1996 and
1997, and March 31,
1998 (no shares
authorized, issued and
outstanding pro
forma)................. 3,570 3,570 3,570 --
Class D, 338,983 shares
authorized, and 96,852
shares issued and
outstanding
(liquidation preference
of $1,000,000) at
December 31, 1996 and
1997, and March 31,
1998 (no shares
authorized, issued and
outstanding pro
forma)................. 97 97 97 --
Class E, 75,329 shares
authorized, issued and
outstanding
(liquidation preference
$1,000,000) at December
31, 1997 and March 31,
1998 (no shares
authorized, issued and
outstanding pro forma) -- 75 75 --
Class E1, 154,963 shares
authorized, issued and
outstanding
(liquidation preference
$2,000,000) at December
31, 1997 and March 31,
1998 (no shares
authorized, issued and
outstanding pro
forma)................. -- 155 155 --
------------ ----------- ----------- -----------
Total convertible
preferred stock....... 5,812 6,042 6,042 --
------------ ----------- ----------- -----------
Preferred stock, $0.001
par value, no shares
authorized, issued and
outstanding at December
31, 1996 and 1997, and
March 31, 1998,
(5,000,000 shares
authorized, no shares
issued and outstanding
pro forma).............. -- -- -- --
Common stock, $0.001 par
value, 8,814,423,
9,553,191 and 9,553,191
shares authorized at
December 31, 1996 and
1997, and March 31,
1998; 987,419,
1,021,013 and 1,029,488
shares issued and
outstanding at December
31, 1996 and 1997, and
March 31, 1998,
respectively,
(50,000,000 shares
authorized, 7,071,751
shares issued and
outstanding pro
forma).................. 987 1,021 1,030 7,072
Additional paid-in
capital................. 34,462,121 37,497,019 37,521,010 37,521,010
Accumulated deficit...... (27,604,590) (28,859,848) (28,888,936) (28,888,936)
Treasury stock, at cost,
47,300 common shares.... (47) (47) (47) (47)
------------ ----------- ----------- -----------
Total stockholders'
equity................. 6,864,283 8,644,187 8,639,099 8,639,099
------------ ----------- ----------- -----------
Total liabilities and
stockholders' equity... $ 8,638,370 $10,546,727 $10,692,287 $10,692,287
============ =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
GENVEC, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------- -----------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues (note 5):
Research revenues..... $ 1,005,000 $ 698,370 $ 3,187,500 $ -- $1,687,500
Milestone revenues.... -- -- 7,000,000 -- 2,000,000
----------- ----------- ----------- ----------- ----------
Total revenues...... 1,005,000 698,370 10,187,500 -- 3,687,500
----------- ----------- ----------- ----------- ----------
Operating expenses:
Research and
development.......... 6,499,830 6,355,333 8,985,625 1,613,790 3,093,068
General and
administrative....... 2,025,131 2,947,165 2,720,101 550,460 738,487
Purchase of in-process
technology (note 4).. 442,078 -- -- -- --
----------- ----------- ----------- ----------- ----------
Total operating
expenses........... 8,967,039 9,302,498 11,705,726 2,164,250 3,831,555
----------- ----------- ----------- ----------- ----------
Loss from operations.. (7,962,039) (8,604,128) (1,518,226) (2,164,250) (144,055)
----------- ----------- ----------- ----------- ----------
Interest income....... 486,435 571,239 319,538 87,481 117,299
Interest expense...... (73,568) (75,272) (56,570) (12,901) (2,332)
----------- ----------- ----------- ----------- ----------
Net interest
income............. 412,867 495,967 262,968 74,580 114,967
----------- ----------- ----------- ----------- ----------
Net loss............ $(7,549,172) $(8,108,161) $(1,255,258) $(2,089,670) $ (29,088)
=========== =========== =========== =========== ==========
Pro forma basic net
loss per share
(note 2)........... $ (0.18) $ (0.01)
=========== ==========
Shares used in
computing pro forma
basic net loss per
share (note 2)..... 6,999,119 7,018,628
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
GENVEC, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D CLASS E
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
---------------- ------------------ ------------------ ----------------- -----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- ------ ---------- ------ ---------- ------ -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31,
1994............ 226,099 $ 226 1,850,109 $1,850 1,474,569 $1,475 -- $ -- -- $ --
Issuance of
Class C
convertible
preferred
shares, net of
issuance costs
of $53,698 (note
7).............. -- -- -- -- 2,095,763 2,095 -- -- -- --
Issuance of
common stock.... -- -- -- -- -- -- -- -- -- --
Exercise of
options......... -- -- -- -- -- -- -- -- -- --
Issuance of
stock for
Theragen
contingent
shares, net of
issuance costs
of $13,335 (note
4).............. -- -- 68,579 69 -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- --
-------- ----- ---------- ------ ---------- ------ -------- ------ -------- ------
Balance,
December 31,
1995............ 226,099 226 1,918,688 1,919 3,570,332 3,570 -- -- -- --
Issuance of
Class D
convertible
preferred
shares, net of
issuance costs
of $8,683
(note 7)........ -- -- -- -- -- -- 96,852 97 -- --
Purchase of
47,300 common
shares (note
7).............. -- -- -- -- -- -- -- -- -- --
Exercise of
options......... -- -- -- -- -- -- -- -- -- --
Stock option and
warrant
compensation
expense
(note 7)........ -- -- -- -- -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- --
-------- ----- ---------- ------ ---------- ------ -------- ------ -------- ------
Balance,
December 31,
1996............ 226,099 226 1,918,688 1,919 3,570,332 3,570 96,852 97 -- --
Issuance of
Class E
convertible
preferred
shares, net of
issuance costs
of $3,215
(note 7)........ -- -- -- -- -- -- -- -- 75,329 75
Issuance of
Class E1
convertible
preferred
shares, net of
issuance costs
of $68,842 (note
7).............. -- -- -- -- -- -- -- -- -- --
Exercise of
options......... -- -- -- -- -- -- -- -- -- --
Stock option and
warrant
compensation
expense
(note 7)........ -- -- -- -- -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- --
-------- ----- ---------- ------ ---------- ------ -------- ------ -------- ------
Balance,
December 31,
1997............ 226,099 226 1,918,688 1,919 3,570,332 3,570 96,852 97 75,329 75
Exercise of
options
(unaudited)..... -- -- -- -- -- -- -- -- -- --
Stock option
compensation
expense
(unaudited)..... -- -- -- -- -- -- -- -- -- --
Net loss
(unaudited)..... -- -- -- -- -- -- -- -- -- --
-------- ----- ---------- ------ ---------- ------ -------- ------ -------- ------
Balance, March
31, 1998
(unaudited)..... 226,099 226 1,918,688 1,919 3,570,332 3,570 96,852 97 75,329 75
Pro forma
conversion of
preferred stock
to common stock
(unaudited)..... (226,099) (226) (1,918,688) (1,919) (3,570,332) (3,570) (96,852) (97) (75,329) (75)
-------- ----- ---------- ------ ---------- ------ -------- ------ -------- ------
Pro forma
balance at March
31, 1998
(unaudited)..... -- $ -- -- $ -- -- $ -- -- $ -- -- $ --
======== ===== ========== ====== ========== ====== ======== ====== ======== ======
<CAPTION>
CLASS E1 TREASURY
PREFERRED STOCK COMMON STOCK ADDITIONAL STOCK
----------------- ---------------- PAID-IN ACCUMULATED --------
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT AMOUNT TOTAL
--------- ------- --------- ------ ------------ ------------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31,
1994............ -- $ -- 532,480 $ 533 $20,425,958 $(11,947,257) $ -- $8,482,785
Issuance of
Class C
convertible
preferred
shares, net of
issuance costs
of $53,698 (note
7).............. -- -- -- -- 12,309,207 -- -- 12,311,302
Issuance of
common stock.... -- -- 20,424 20 12,030 -- -- 12,050
Exercise of
options......... -- -- 7,812 8 5,030 -- -- 5,038
Issuance of
stock for
Theragen
contingent
shares, net of
issuance costs
of $13,335 (note
4).............. -- -- 63,492 63 428,611 -- -- 428,743
Net loss........ -- -- -- -- -- (7,549,172) -- (7,549,172)
--------- ------- --------- ------ ------------ ------------- -------- -----------
Balance,
December 31,
1995............ -- -- 624,208 624 33,180,836 (19,496,429) -- 13,690,746
Issuance of
Class D
convertible
preferred
shares, net of
issuance costs
of $8,683
(note 7)........ -- -- -- -- 991,220 -- -- 991,317
Purchase of
47,300 common
shares (note
7).............. -- -- -- -- (27,860) -- (47) (27,907)
Exercise of
options......... -- -- 363,211 363 212,865 -- -- 213,228
Stock option and
warrant
compensation
expense
(note 7)........ -- -- -- -- 105,060 -- -- 105,060
Net loss........ -- -- -- -- -- (8,108,161) -- (8,108,161)
--------- ------- --------- ------ ------------ ------------- -------- -----------
Balance,
December 31,
1996............ -- -- 987,419 987 34,462,121 (27,604,590) (47) 6,864,283
Issuance of
Class E
convertible
preferred
shares, net of
issuance costs
of $3,215
(note 7)........ -- -- -- -- 996,712 -- -- 996,787
Issuance of
Class E1
convertible
preferred
shares, net of
issuance costs
of $68,842 (note
7).............. 154,963 155 -- -- 1,931,002 -- -- 1,931,157
Exercise of
options......... -- -- 33,594 34 22,286 -- -- 22,320
Stock option and
warrant
compensation
expense
(note 7)........ -- -- -- -- 84,898 -- -- 84,898
Net loss........ -- -- -- -- -- (1,255,258) -- (1,255,258)
--------- ------- --------- ------ ------------ ------------- -------- -----------
Balance,
December 31,
1997............ 154,963 155 1,021,013 1,021 37,497,019 (28,859,848) (47) 8,644,187
Exercise of
options
(unaudited)..... -- -- 8,475 9 4,991 -- -- 5,000
Stock option
compensation
expense
(unaudited)..... -- -- -- -- 19,000 -- -- 19,000
Net loss
(unaudited)..... -- -- -- -- -- (29,088) -- (29,088)
--------- ------- --------- ------ ------------ ------------- -------- -----------
Balance, March
31, 1998
(unaudited)..... 154,963 155 1,029,488 1,030 37,521,010 (28,888,936) (47) 8,639,099
Pro forma
conversion of
preferred stock
to common stock
(unaudited)..... (154,963) (155) 6,042,263 6,042 -- -- -- --
--------- ------- --------- ------ ------------ ------------- -------- -----------
Pro forma
balance at March
31, 1998
(unaudited)..... -- $ -- 7,071,751 $7,072 $37,521,010 $(28,888,936) $(47) $8,639,099
========= ======= ========= ====== ============ ============= ======== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
GENVEC, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------- -----------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss.............. $(7,549,172) $(8,108,161) $(1,255,258) $(2,089,670) $ (29,088)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization
expense............. 387,045 503,285 484,334 119,916 132,174
Stock option and
warrant compensation
expense (note 7).... -- 105,060 84,898 -- 19,000
Non-cash purchase of
in-process
technology (note
4).................. 442,078 -- -- -- --
(Increase) decrease
in other current
assets.............. (3,276) (66,669) (32,003) 39,736 (157,664)
(Increase) decrease
in other assets..... (4,696) 514 -- -- --
(Increase) in
accounts
receivable.......... -- -- -- -- (2,000,000)
(Increase) decrease
in prepaid
expenses............ (170,684) 82,718 (245,897) 4,347 69,438
Increase (decrease)
in accounts
payable............. (84,148) (334,736) 123,139 (29,501) (193,528)
Increase (decrease)
in accrued
expenses............ 37,344 459,634 (151,121) 20,321 297,597
Increase (decrease)
in accrued
technological
license and
intellectual
property expenses... 9,211 430,344 481,018 (292,987) 123,344
Increase (decrease)
in other non-current
liabilities......... -- -- 26,500 -- (13,250)
----------- ----------- ----------- ----------- ----------
Net cash used in
operating
activities......... (6,936,298) (6,928,011) (484,390) (2,227,838) (1,751,977)
----------- ----------- ----------- ----------- ----------
Cash flows from
investing activities:
Purchase of property
and equipment........ (235,053) (86,387) (475,760) (64,040) (281,693)
Purchases of
investments.......... -- (8,769,124) (4,361,879) (1,783,889) --
Proceeds from
maturities of
investments.......... -- 6,190,000 4,363,013 2,094,412 --
----------- ----------- ----------- ----------- ----------
Net cash provided by
(used in) investing
activities......... (235,053) (2,665,511) (474,626) 246,483 (281,693)
----------- ----------- ----------- ----------- ----------
Cash flows from
financing activities:
Proceeds from issuance
of common stock...... 5,038 213,228 22,320 3,618 5,000
Proceeds from issuance
of preferred stock,
net of issuance
costs................ 12,311,302 991,317 2,927,944 -- --
Purchase of treasury
stock................ -- (27,907) -- -- --
Payments under capital
lease obligation..... (302,020) (433,191) (351,084) (104,707) (63,515)
Sale of property and
equipment............ -- 116,555 -- -- --
----------- ----------- ----------- ----------- ----------
Net cash provided by
(used in) financing
activities......... 12,014,320 860,002 2,599,180 (101,089) (58,515)
----------- ----------- ----------- ----------- ----------
Increase (decrease) in
cash and cash
equivalents........... 4,842,969 (8,733,520) 1,640,164 (2,082,444) (2,092,185)
Cash and cash
equivalents, beginning
of period............. 9,036,777 13,879,746 5,146,226 5,146,226 6,786,390
----------- ----------- ----------- ----------- ----------
Cash and cash
equivalents, end of
period................ $13,879,746 $ 5,146,226 $ 6,786,390 $ 3,063,782 $4,694,205
=========== =========== =========== =========== ==========
Supplemental
disclosures of cash
flow information:
Cash paid during the
period for interest.. $ 73,568 $ 75,272 $ 36,158 $ 12,901 $ 2,332
=========== =========== =========== =========== ==========
Supplemental schedule
of non-cash investing
and financing
activities:
Capital stock issued
for the purchase of
Theragen, Inc.
(note 4)............. $ 428,743 $ -- $ -- $ -- $ --
=========== =========== =========== =========== ==========
Assets acquired under
capital lease (note
6)................... $ 391,678 $ -- $ -- $ -- $ --
=========== =========== =========== =========== ==========
Issuance of stock in
payment of accrued
expenses............. $ 12,050 $ -- $ -- $ -- $ --
=========== =========== =========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
GENVEC, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(1) ORGANIZATION AND BUSINESS DESCRIPTION
GenVec, Inc. ("GenVec" or the "Company") was incorporated under the laws of
the state of Delaware on December 7, 1992. GenVec focuses on the development
and commercialization of novel gene therapy products for major disease
markets. GenVec's lead product candidate, BIOBYPASS angiogen, is currently in
Phase I/II clinical trials for the treatment of coronary artery disease.
GenVec also intends to initiate a Phase I/II clinical trial in patients with
peripheral vascular disease in May 1998. The Company is developing BIOBYPASS
angiogen as part of its collaboration with the Warner-Lambert Company
("Warner-Lambert"), under which the Company could receive payments totaling
over $100 million in milestone payments, research funding, equity purchases
and technology access fees, upon the achievement of specified milestones. As
of April 20, 1998, Warner-Lambert had paid to the Company $13.5 million under
this collaboration. The Company is also pursuing research and development
programs in the areas of vascular damage, oncology and neurology. GenVec has
entered into corporate collaborations with Varian Associates, Inc. ("Varian")
and Fuso Pharmaceutical Industries, Ltd. ("Fuso") in certain areas of
oncology.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited Interim Financial Information
The interim financial statements of the Company for the three months ended
March 31, 1997 and 1998, included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations relating to interim financial statements. In the opinion
of management, the accompanying unaudited interim financial statements reflect
all adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position of the Company at March 31, 1997 and
1998, and the results of its operations and its cash flows for the three
months ended March 31, 1997 and 1998.
Revenue Recognition
Revenue from research and development contracts is recognized when earned as
defined under the terms of the respective contracts. Revenue from milestone
events is recognized when the milestone is achieved. Revenue recognized in the
accompanying statements of operations is not subject to repayment.
Research and Development
Research and development costs are charged to operations as incurred. Such
costs include proprietary research and development activities and expenses
associated with collaborative research agreements.
Property and Equipment
Property and equipment are stated at cost. Capitalized lease assets are
stated at the lower of the present value of the future minimum lease payments
or fair value at the inception of the lease.
Property and equipment is depreciated over the estimated useful lives of
assets, generally three to seven years, using the straight-line method.
F-7
<PAGE>
GENVEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1997 AND 1996
Income Taxes
Income taxes are accounted for in accordance with Statement 109, Accounting
for Income Taxes.
Under the asset and liability method of Statement 109, deferred tax assets
and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that are expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments with original
maturities of three months or less, and are recorded at amortized cost which
approximates fair value. Cash equivalents consist primarily of money market
funds, bonds and commercial paper.
Short-term Investments
The Company's short-term investments, consisting primarily of bonds and
commercial paper, are classified as held to maturity portfolio as the Company
has both the ability and intent to hold securities until maturity. The
portfolio is carried at amortized cost which approximates fair value.
Basic Net Loss Per Share and Pro Forma Basic Net Loss Per Share
The Company adopted Statement 128, Earnings Per Share, in 1997. Statement
128 requires the presentation of basic earnings (loss) per share and diluted
earnings (loss) per share, if more dilutive, for all periods presented.
In accordance with Statement 128, basic net loss per share has been computed
using the weighted average number of shares of common stock outstanding during
the period.
Pro forma basic net loss per share as presented in the statement of
operations has been computed as described above and also gives effect to the
conversion of the convertible preferred stock that will occur upon completion
of the Company's initial public offering (using the as-if converted method
from the original date of issuance.)
A reconciliation of shares used in the calculation of basic and pro forma
basic net loss per share follows (in thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS
------------------------------ ENDED
1995 1996 1997 MARCH 31, 1998
-------- -------- ---------- ---------------
(unaudited)
<S> <C> <C> <C> <C>
Net loss....................... $ (7,549) $ (8,108) $ (1,255) $ (29)
======== ======== ========== ==========
Weighted average shares of
common stock outstanding
(shares used in computing
basic net loss per share)..... 561,319 801,769 956,856 976,365
Basic net loss per share....... $ (13.45) $ (10.11) $ (1.31) $ (0.03)
======== ======== ========== ==========
Shares used in computing basic
net loss per share............ 956,856 976,365
Adjustment to reflect the
effect of the assumed
conversion of preferred
stock......................... 6,042,263 6,042,263
---------- ----------
Shares used in computing pro
forma basic net loss per
share......................... 6,999,119 7,018,628
========== ==========
Pro forma basic net loss per
share......................... $ (0.18) $ (0.01)
========== ==========
</TABLE>
Had the Company been in a net income position, diluted earnings per share
would have been presented and would have included the shares used in the
computation of pro forma basic net loss per share as well as
F-8
<PAGE>
GENVEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1997 AND 1996
additional potential common shares related to outstanding options and
warrants. The diluted EPS computation is not included, as all potential common
shares are antidilutive.
Pro Forma Balance Sheet (unaudited)
The unaudited pro forma balance sheet as of March 31, 1998, reflects the
conversion of the existing shares of convertible preferred stock into an
equivalent number of shares of common stock (adjusted for the common stock
reverse split), which conversion is contingent upon the closing of the
offering (see note 10).
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles may require 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.
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments, as reflected in
the accompanying balance sheets, approximate fair value. Financial instruments
consist of cash and cash equivalents, short-term investments, accounts
receivable, accounts payable, accrued technological license and intellectual
property expenses, accrued expenses, accrued payroll and related expenses and
capital lease obligations.
Stock Option Plan
The Company accounts for its stock option plan in accordance with Statement
123, Accounting for Stock-Based Compensation, which permits entities to
recognize as expense over the vesting period the fair value of all stock-based
awards on the date of grant. Alternatively, Statement 123 also allows entities
to continue to apply the provisions of APB Opinion No. 25, Accounting for
Stock Issued to Employees, and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants as if the
fair-value-based method defined in Statement 123 had been applied. Under APB
Opinion No. 25, compensation expense would be recorded on the date of grant
only if the current market price of the underlying stock exceeded the exercise
price. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosures of Statement 123 for
employee stock option grants. Non-employee stock option grants are recorded in
accordance with the provisions of Statement 123.
(3) SHORT-TERM INVESTMENTS
The Company holds all securities to maturity. The amortized cost, gross
unrealized holding gains and losses and fair value for held-to-maturity
securities by major security type at December 31, 1996 and 1997 and March 31,
1998, are as follows:
<TABLE>
<CAPTION>
1996
------------------------------------
GROSS
UNREALIZED
AMORTIZED HOLDING FAIR
COST GAINS (LOSSES) VALUE
---------- -------------- ----------
<S> <C> <C> <C>
Classified as investments:
Corporate bonds...................... $1,686,350 $15,759 $1,702,109
Commercial paper..................... 892,774 (6,537) 886,237
---------- ------- ----------
$2,579,124 $ 9,222 $2,588,346
========== ======= ==========
Classified as cash equivalents:
Corporate bonds...................... $ 601,932 $ 37 $ 601,969
Commercial paper..................... 989,656 -- 989,656
---------- ------- ----------
$1,591,588 $ 37 $1,591,625
========== ======= ==========
</TABLE>
F-9
<PAGE>
GENVEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997
------------------------------------
GROSS
UNREALIZED
AMORTIZED HOLDING FAIR
COST GAINS (LOSSES) VALUE
---------- -------------- ----------
<S> <C> <C> <C>
Classified as investments:
Tax exempt bonds..................... $ 499,191 $ 534 $ 499,725
Corporate bonds...................... 2,078,799 2,327 2,081,126
---------- ------ ----------
$2,577,990 $2,861 $2,580,851
========== ====== ==========
Classified as cash equivalents:
Corporate bonds...................... $1,998,589 $1,411 $2,000,000
Commercial paper..................... 1,286,427 -- 1,286,427
---------- ------ ----------
$3,285,016 $1,411 $3,286,427
========== ====== ==========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998 (UNAUDITED)
------------------------------------
GROSS
UNREALIZED
AMORTIZED HOLDING FAIR
COST GAINS (LOSSES) VALUE
---------- -------------- ----------
<S> <C> <C> <C>
Classified as investments:
Tax exempt bonds..................... $ 499,591 $ 239 $ 499,830
Corporate bonds...................... 2,068,275 5,209 2,073,484
---------- ------ ----------
$2,567,866 $5,448 $2,573,314
========== ====== ==========
Classified as cash equivalents:
Commercial paper..................... $3,387,799 $ -- $3,387,799
---------- ------ ----------
$3,387,799 $ -- $3,387,799
========== ====== ==========
</TABLE>
(4) PURCHASE OF THERAGEN, INC.
Pursuant to an agreement effective August 8, 1994, the Company acquired
Theragen, Inc., ("Theragen") a gene therapy company incorporated under the
laws of the state of Michigan. This acquisition transferred all of Theragen's
technology, know-how and licenses to the Company. The purchase was effected
through an exchange of all shares of Theragen stock outstanding immediately
prior to the acquisition for up to 964,940 shares of the Company's capital
stock which was comprised of common stock, Class B convertible preferred stock
and options to purchase common stock. This included contingent shares of
253,932 that were to be issued or vested upon the achievement of certain
milestones. The cost of the acquisition was $2,580,798 in 1994, which
consisted of the fair value of the Company's capital stock contributed on the
purchase date as well as other direct transaction-related costs. These costs
were recorded as purchase of in-process technology expense since no
capitalizable technology was purchased. The acquisition was accounted for
using the purchase method. Accordingly, the results of operations of the
acquired company were included with those of the Company for periods
subsequent to the date of acquisition.
In 1995, the terms for the issuance or vesting of the contingent shares were
modified. Instead of issuing these shares upon the achievement of certain
milestones, shares and options were issued or vested in 1995 in an amount
equal to approximately 55.1% of the original issuable contingent shares in
lieu of all contingent
F-10
<PAGE>
GENVEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1997 AND 1996
rights of former Theragen stockholders. As a result, shares of stock totaling
132,071 were issued at fair market value, as determined by the Company's Board
of Directors, while options totaling 7,759 were vested, and 14,091 were
canceled. The cost of the stock transaction is deemed to be part of the
acquisition cost, and is reflected in the accompanying statements of
operations as purchase of in-process technology expense.
(5) RESEARCH AND DEVELOPMENT AGREEMENTS
Fuso Pharmaceuticals Industries, Ltd.
In September 1997, the Company and Fuso established a collaboration to
conduct research and to identify, evaluate and develop gene therapy products
for the treatment of cancer. If the research program continues for its full
term, Fuso is required to provide $1.0 million in research funding annually
for five years, of which $750,000 will be paid to the Company each year. Fuso
has the right to terminate the collaboration after the second anniversary of
the collaboration upon 90 days prior written notice. In connection with
establishment of the collaboration, Fuso purchased shares of the Company's
capital stock for $1.0 million. The Company recognized contract revenues from
Fuso of $187,500 for the year ended December 31, 1997 and $187,500 for the
three months ended March 31, 1998.
As part of the collaboration, the Company granted Fuso an exclusive,
royalty-bearing license to develop and commercialize products developed under
the collaboration for the treatment of cancer in Japan and at Fuso's option,
Korea and Taiwan. Fuso will be responsible for the development and
commercialization of any products in its territory. The Company will receive
additional payments for the achievement by Fuso of specified product
development and regulatory milestones, and royalties on the sale of any such
products commercialized by Fuso. The Company has retained all rights to
develop and commercialize such products for the treatment of cancer in the
rest of the world, and for all other uses worldwide, subject to certain
restrictions, independently and with third parties.
Warner-Lambert Company
In July 1997, Warner-Lambert, a stockholder then owning 7,487 shares of the
Company's common stock and 187,405 shares of the Company's Class B preferred
stock, entered into a collaboration agreement and a stock purchase agreement
with the Company to develop and commercialize gene therapy products
incorporating the VEGF gene for therapeutic angiogenesis ("Collaboration
Products"). Under the agreements, the Company may receive more than $100
million in milestone payments, research funding, equity purchases and
technology access fees, if specified milestones are achieved. Pursuant to the
collaboration agreement, Warner-Lambert had paid to the Company an aggregate
of $13.5 million through April 20, 1998, of which the Company recognized
revenues of $10.0 million for the year ended December 31, 1997, and $3.5
million for the three months ended March 31, 1998.
Pursuant to the stock purchase agreement, Warner-Lambert purchased $2.0
million of the Company's capital stock in December 1997, consisting of 154,963
shares of the Company's Class E1 preferred stock at a price of approximately
$12.91 per share. In addition, Warner-Lambert has agreed to purchase $5.0
million of the Company's common stock in a private transaction concurrent with
an IPO at 125% of the price at which a share of common stock is sold to the
public.
Warner-Lambert's research and development funding obligations extend through
2002, although Warner-Lambert may terminate the research program under the
collaboration agreement with six months written notice after July 21, 2000.
Both parties have the right to terminate the collaboration agreement for
breach. The collaboration agreement expires on a Collaboration Product-by-
Collaboration Product and country-by-country basis until neither party has any
remaining royalty obligations. The stock purchase agreement terminates upon
the termination of the collaboration agreement.
F-11
<PAGE>
GENVEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1997 AND 1996
Genentech, Inc.
In May 1993, Genentech, Inc., ("Genentech") a stockholder owning 56,610
shares of the Company's Class A preferred stock, and 338,983 shares each of
the Company's Class B and Class C preferred stock as of December 31, 1997 and
March 31, 1998, executed a research and development agreement with the
Company. Under this agreement, the Company performed research and development
activities with respect to gene therapy products for cystic fibrosis.
Genentech was required to make certain research and development payments and
certain milestone payments to the Company aggregating up to $12.75 million, in
exchange for the right to develop, manufacture, and sell potential products in
the cystic fibrosis field. Effective September 12, 1996, the research and
development agreement between the Company and Genentech terminated due to a
change in research focus. Contract revenues of $1,000,000, $698,370 and $0
were recognized from Genentech in 1995, 1996 and 1997, respectively.
Varian Associates, Inc.
In March 1998, the Company and Varian entered into a three-year
collaborative agreement in the field of radiation and gene therapy. Under the
agreement, the parties will collaborate on the preclinical and clinical
research and development of specific products and technology, with the goal of
developing novel, improved therapies based on the combined use of radiation
therapy and gene therapy products. Varian will have primary responsibility for
the development of equipment and software for delivery of targeted radiation
therapy, and the Company will have primary responsibility for developing gene
therapy products. The Company and Varian each retain the right to develop and
commercialize their respective products and technologies independently or with
third parties.
(6) COMMITMENTS
Lease Agreements
In January 1994, the Company entered into a capital lease agreement allowing
it to fund the acquisition of up to $1.5 million of furniture and equipment
purchases. Lease terms of new purchases were 42 months with an interest rate
of 9.6%. In connection with this agreement, the Company granted the lessor
warrants to purchase approximately 23,800 shares of Class B convertible
preferred stock at a purchase price of approximately $5.90 per share. Pursuant
to this lease agreement, in May 1994, the Company entered into a sale lease-
back transaction whereby it sold and subsequently leased-back furniture and
equipment to which it held title. Additional equipment purchases have been
funded under extensions made to this agreement through 1996.
Included in property and equipment at December 31, 1996 and 1997 and March
31, 1998, are assets recorded under this agreement of $1,404,620, $813,552 and
$732,155, respectively. Accumulated depreciation and amortization at December
31, 1996 and 1997 and March 31, 1998, includes amounts for the capital lease
of $906,311, $716,565 and $693,277, respectively.
F-12
<PAGE>
GENVEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1997 AND 1996
Future minimum lease payments due under this capital lease at December 31,
1997, are as follows:
<TABLE>
<S> <C>
1998............................................................... $186,007
1999............................................................... 47,988
--------
Total minimum lease payments....................................... 233,995
Less amounts representing interest at 9.6%......................... 12,821
--------
Present value of minimum capital lease payments.................... 221,174
Less current installments.......................................... 174,611
--------
Obligations under capital lease, net of current installments....... $ 46,563
========
</TABLE>
During 1997, portions of the Company's capital lease expired. The Company
has continued leasing assets under the expired leases on a month-to-month
basis.
In addition to the aforementioned capital lease, the Company leases office
and laboratory space under month-to-month operating leases. The Company may
terminate the office and laboratory space leases, one at a time, over a
minimum period of 210 days. Rent expense under operating leases was
approximately $156,000, $167,000 and $240,000 for the years ended December 31,
1995, 1996 and 1997, and approximately $50,000 and $117,000 for the three
months ended March 31, 1997 and 1998, respectively.
Research and Development Agreements
The Company has agreed to provide grants for certain research projects under
agreements with several universities and research organizations. Under the
terms of these agreements, the Company has received exclusive licenses to the
resulting technology. Total grants paid by the Company were $2,598,000,
$2,277,000 and $2,734,000 for the years ended December 31, 1995, 1996 and
1997, and $711,000 and $608,000 for the three months ended March 31, 1997 and
1998, respectively. The Company has commitments to pay up to approximately
$6,968,000 related to these grants through 1999.
(7) STOCKHOLDERS' EQUITY
Capital Changes
Effective in December 1995, the Company amended its Certificate of
Incorporation which effected the authorization of a total of 7,848,321 shares
of common stock and 3,570,332 shares of Class C convertible preferred stock,
each having a par value of $0.001 per share.
Effective in June 1996, the Company restated its Certificate of
Incorporation which effected the authorization of a total of 8,814,423 shares
of common stock and 338,983 shares of Class D convertible preferred stock,
each having a par value of $0.001 per share.
Effective in December 1997, the Company amended its Certificate of
Incorporation which effected the authorization of a total of 9,553,191 shares
of common stock, 75,329 shares of Class E convertible preferred stock and
154,963 shares of Class E1 convertible preferred stock, each having a par
value of $0.001 per share.
Convertible Preferred Stock
In September 1995, the Company issued an additional 2,095,763 shares of
Class C convertible preferred stock in a private placement. In May 1996, the
Company issued 96,852 shares of Class D convertible preferred stock. In
December 1997, the Company issued 75,329 shares of Class E convertible
preferred stock and 154,963 shares of Class E1 convertible preferred stock.
F-13
<PAGE>
GENVEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1997 AND 1996
Since its inception, the Company has issued 6,042,263 shares of convertible
preferred stock (Class A, B, C, D, E and E1) for aggregate cash consideration
of $34,482,000. Preferred stockholders participate in the dividends declared
to common stockholders, if any, in an amount proportionate to the number of
shares of common stock into which the preferred stock is convertible.
Preferred holders are entitled to one vote for each share of common stock into
which the preferred shares can be converted.
In the event of any voluntary or involuntary liquidation of the Company,
before any distribution can be made to the holders of common stock, the
preferred stockholders are entitled to receive payment of $2.95 for each share
of Class A convertible preferred stock, $5.90 for each share of Class B and C
convertible preferred stock, $10.33 for each share of Class D convertible
preferred stock, $13.28 for each share of Class E convertible preferred stock
and $12.91 for each share of Class E1 convertible preferred stock plus any
declared but unpaid dividends. No dividends were declared for the years ended
December 31, 1995, 1996 and 1997, or for the three months ended March 31,
1998.
Holders of Class A, B, C, D, E and E1 convertible preferred stock have the
right at any time, at their option, to convert without the payment of
additional consideration, each preferred stock share into an equivalent number
of common stock shares. Holders of Class A, B, C, D, E and E1 convertible
preferred stock convert at a one-for-one basis; all Class A, B and C shares of
convertible preferred stock are subject to certain antidilution adjustments.
The Company has reserved 6,042,263 shares of common stock for issuance upon
conversion of the Class A, B, C, D, E and E1 convertible preferred stock. Upon
the occurrence of an initial public offering of GenVec stock which yields the
Company at least $15 million, all preferred stock shares will convert to
common stock shares. The preferred stockholders have voting rights equal to
the common shares they would own upon conversion.
Treasury Stock
Outstanding shares of common stock totaling 47,300 were repurchased by the
Company in 1996 at $0.59 per share. The shares were purchased from two
employees who left the Company in 1996.
Restricted Common Stock
In 1993, the Company issued a total of 185,939 shares of restricted common
stock at a purchase price equal to the fair market value on the date of grant
in 1993, and recorded notes receivable as a reducing component of equity. As
of March 31, 1998, 135,092 shares are still restricted and the Company has a
note receivable with a former officer for $79,704 plus accrued interest of
$27,760 related to this restricted common stock.
Stock Incentive Plan
The Company adopted its 1993 Stock Incentive Plan (the "Stock Plan") in
October 1993. The Stock Plan was amended and restated in October 1997 and
April 1998. An aggregate of 1,846,218 shares of common stock has been reserved
for issuance, which number will be increased on each anniversary date of the
adoption of the Stock Plan, beginning in 1999, by a number of shares equal to
the number of shares needed to restore the maximum aggregate number of shares
reserved for issuance under the Stock Plan to 1,846,218 or a lesser amount
determined by the Board of Directors. The Stock Plan will continue in effect
for a term of ten years, unless terminated by the Board at an earlier date.
Options to purchase common stock under the Stock Plan are exercisable at the
rate of 12.5% of the shares six months from the vesting commencement date and
approximately 1/48th of the shares monthly thereafter, such that the option is
fully exercisable four years from the vesting commencement date.
F-14
<PAGE>
GENVEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1997 AND 1996
The maximum term for options granted under the Stock Plan is ten years,
except that if, at the time of the grant, the optionee possesses more than ten
percent of the combined voting power of the Company, the maximum term of the
option is five years. Exercise prices of the options approximates fair value
on the date of grant, however, for options granted to a ten percent
stockholder, then the exercise price must be equal to at least 110% of the
fair value of the stock on the date of grant. Options granted under the Stock
Plan expire three months after the termination of an optionee's service to the
Company.
The Company applies Statement 123 for options granted to consultants. In
adopting Statement 123 for options granted to consultants, $105,060 and
$84,898 for the years ended December 31, 1996 and 1997, and $19,000 for the
three months ended March 31, 1998, was recognized for compensation expense to
consultants.
The Company applies APB Opinion No. 25 in accounting for its stock option
plan for options granted to employees and accordingly, no compensation expense
has been recognized in the financial statements. Had the Company determined
compensation expense based on the fair value at the grant date for its stock
options issued to employees under Statement 123, the Company's net loss would
have been adjusted to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
1995 1996 1997 MARCH 31, 1998
----------- ----------- ----------- ---------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net loss................ As reported $(7,549,172) $(8,108,161) $(1,255,258) $(29,088)
=========== =========== =========== ========
Pro forma (7,571,594) (8,179,600) (1,381,997) (29,088)
=========== =========== =========== ========
Basic net loss per
common share........... As reported $ (13.45) $ (10.11) $ (1.31) $ (0.03)
=========== =========== =========== ========
Pro forma (13.49) (10.20) (1.44) (0.03)
=========== =========== =========== ========
</TABLE>
Pro forma net loss reflects compensation expense under Statement 123 only
for options granted for the years ended December 31, 1995, 1996 and 1997, and
for the three months ended March 31, 1998. Therefore, the full impact of
calculating compensation expense for stock options under Statement 123 is not
reflected in the pro forma net loss amounts presented above because
compensation expense is reflected over the options' vesting period and
compensation expense for options granted prior to January 1, 1995, is not
considered.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
1995 1996 1997 MARCH 31, 1998
---------- ---------- ---------- --------------
(unaudited)
<S> <C> <C> <C> <C>
Dividend yield.............. -- -- -- --
Expected volatility......... 63% 63% 60% 60%
Risk free interest rate..... 5.8% 5.8% 5.78% 5.78%
Expected life............... 4.25 years 4.25 years 4.25 years 4.25 years
</TABLE>
F-15
<PAGE>
GENVEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1997 AND 1996
A summary of the status of the Company's stock options as of December 31,
1995, 1996 and 1997 and March 31, 1998 and changes during the period ending on
those dates is presented below:
<TABLE>
<CAPTION>
1995 1996 1997 MARCH 31, 1998
---------------- ---------------- ---------------- ----------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE
(000)'S PRICE (000)'S PRICE (000)'S PRICE (000)'S PRICE
------- -------- ------- -------- ------- -------- ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period.............. 382 $0.59 863 $0.71 860 $1.06 1,114 $1.95
Granted................. 507 0.77 617 1.12 335 4.01 -- --
Cancelled............... (18) 0.18 (304) (0.59) (47) 0.53 -- --
Exercised............... (8) 0.65 (316) 0.59 (34) 0.65 (8) 0.59
--- ----- ---- ----- ----- ----- ----- -----
Outstanding at end of
period................. 863 $0.71 860 $1.06 1,114 $1.95 1,106 $1.95
Options exercisable at
end of period.......... 318 $0.59 326 $0.89 562 $1.18 614 $1.30
Weighted average fair
value of options
granted during the
period................. $0.30 $0.65 $2.18 $ --
</TABLE>
The following table summarizes information about stock options outstanding at
March 31, 1998 (unaudited):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- ----------------------
RANGE WEIGHTED AVERAGE WEIGHTED WEIGHTED
OF REMAINING AVERAGE AVERAGE
EXERCISE PRICES NUMBER CONTRACTUAL LIFE EXERCISE PRICE NUMBER EXERCISE PRICE
- --------------- --------- ---------------- -------------- ------- --------------
<S> <C> <C> <C> <C> <C>
$0.06 1,700 7.63 years $0.06 1,700 $0.06
0.59 570,377 6.89 0.59 418,353 0.59
0.65-1.00 8,648 6.25 1.00 8,648 0.94
1.48 90,672 8.25 1.48 50,957 1.48
3.54 193,209 8.59 3.54 101,945 3.54
4.13 238,129 9.50 4.13 28,979 4.13
5.90 3,220 7.08 5.90 3,220 5.90
---------- --------- ---- ----- ------- -----
$0.06-5.90 1,105,955 7.84 $1.95 613,802 $1.30
========= =======
</TABLE>
F-16
<PAGE>
GENVEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1997 AND 1996
Warrants
Warrants to purchase common and preferred stock are granted to organizations
and institutions in conjunction with certain research activities. The warrants
vest according to a combination of time and events as prescribed in the
agreements. The Company applies the provisions of APB Opinion No. 25 to
warrants issued prior to 1996. No warrants were granted during the year ended
December 31, 1997, or for the three months ended March 31, 1998. During the
year ended December 31, 1997, 33,898 warrants expired. At December 31, 1996
and 1997 and March 31, 1998, the Company had the following warrants
outstanding.
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997 MARCH 31, 1998
EXERCISE ------------------ ------------------- -------------------
PRICE OUTSTANDING VESTED OUTSTANDING VESTED OUTSTANDING VESTED
-------- ----------- ------ ----------- ------- ----------- -------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Class B preferred stock
warrants............... $ 5.90 40,756 23,807 40,756 23,807 40,756 23,807
====== ======= ====== ======= ======= ======= =======
Common stock warrants... $14.75 101,694 16,949 67,796 33,898 67,796 33,898
$13.28 211,864 -- 211,864 158,898 211,864 158,898
------ ------- ------ ------- ------- ------- -------
Total common stock
warrants............... 313,558 16,949 279,660 192,796 279,660 192,796
======= ====== ======= ======= ======= =======
</TABLE>
(8) INCOME TAXES
A reconciliation of tax credits computed at the statutory federal tax rate
on loss from operations before income taxes to the actual income tax expense
is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------- -------------------
1995 1996 1997 1997 1998
----------- ----------- --------- --------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Tax provision computed
at the statutory rate.. $(2,642,000) $(2,838,000) $(439,300) $(731,400) $(10,200)
State income taxes, net
of federal income tax
provision.............. (284,000) (324,000) (50,200) (83,600) (1,200)
Purchase of in-process
technology............. 155,000 -- -- -- --
Book expenses not
deductible for tax
purposes............... 5,000 6,000 8,100 2,000 5,200
Research and
experimentation tax
credit................. (263,000) 41,000 (144,900) (36,200) (36,200)
Change in the beginning
of the period valuation
allowance for deferred
tax assets allocated to
tax expense............ 3,032,000 3,086,000 624,900 847,700 43,900
Other, net.............. (3,000) 29,000 1,400 1,500 (1,500)
----------- ----------- --------- --------- --------
Income tax expense...... $ -- $ -- $ -- $ -- $ --
=========== =========== ========= ========= ========
</TABLE>
F-17
<PAGE>
GENVEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1997 AND 1996
Deferred income taxes reflect the net effects of net operating loss
carryforwards and the temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes. Significant components of the Company's deferred tax
assets as of December 31, 1996 and 1997 and March 31, 1998, are as follows:
<TABLE>
<CAPTION>
1996 1997 MARCH 31, 1998
----------- ----------- --------------
(unaudited)
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.... $ 9,703,000 $10,031,000 $10,684,000
Research and experimentation tax
credit............................. 541,000 686,000 722,000
Cumulative effect of using cash
basis method of accounting for
income tax purposes................ 364,000 433,000 (229,000)
Property and equipment, principally
due to differences in
depreciation....................... 66,000 115,000 131,000
Other............................... 41,000 75,000 76,000
----------- ----------- -----------
Total deferred tax assets............. 10,715,000 11,340,000 11,384,000
Valuation allowance................... (10,715,000) (11,340,000) (11,384,000)
----------- ----------- -----------
Net deferred tax asset................ $ -- $ -- $ --
=========== =========== ===========
</TABLE>
The valuation allowance for deferred tax assets increased approximately
$3,032,000, $3,086,000 and $625,000 for the years ended December 31, 1995,
1996 and 1997, respectively and increased approximately $44,000 for the three
months ended March 31, 1998.
At March 31, 1998, the Company has net operating loss carryforwards of
approximately $27.4 million for federal income tax purposes of which $25.7
million expire at various dates through 2012, and $1.7 million expire in 2018,
including $1,493,000 which were acquired from the purchase of Theragen (note
4). The Company also has research and experimentation tax credit carryforwards
of $722,000 at March 31, 1998, of which $686,000 expire through 2012 and
$36,000 expire in 2018. These carryforwards may be significantly limited under
the Internal Revenue Code as a result of ownership changes experienced by the
Company.
(9) DEFINED CONTRIBUTION PLAN--401(K)
The Company has a defined contribution plan (the "Plan") under Internal
Revenue Code Section 401(k) which became effective on January 1, 1995. All
full-time employees who have completed six months of service and are over age
21 are eligible for participation in the Plan. Participants may elect to have
up to 15% of compensation contributed to the Plan. Under the Plan, the
Company's contributions are discretionary. During the years ended December 31,
1995, 1996 and 1997, and for the three months ended March 31, 1998, no
discretionary contributions were made.
(10) SUBSEQUENT EVENTS
Reverse Stock Split (unaudited)
On April 28, 1998, the Company's Board of Directors approved a 5.9 for 1
reverse stock split, subject to stockholder approval. All common and preferred
share, per share and pro forma amounts in the accompanying financial
statements have been retroactively adjusted for all periods presented to
reflect this reverse stock split for all periods presented.
F-18
<PAGE>
GENVEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1997 AND 1996
Capital Changes (unaudited)
Effective in May 1998, the Company amended and restated its Certificate of
Incorporation which effected the authorization of a total of 50,000,000 shares
of common stock, 5,000,000 shares of undesignated preferred stock, 226,099
shares of Class A convertible preferred stock, 1,959,444 shares of Class B
convertible preferred stock, 3,570,332 shares of Class C convertible preferred
stock, 96,852 shares of Class D convertible preferred stock, 75,329 shares of
Class E convertible preferred stock and 154,963 of Class E-1 convertible
preferred stock, each having a par value of $0.001 per share.
Initial Public Offering (unaudited)
On April 27, 1998, the Board of Directors authorized the filing of a
registration statement for the offering with the Securities and Exchange
Commission for the sale of 2,500,000 shares of common stock. If the offering
is consummated under the terms presently anticipated, all 6,042,263 shares of
the convertible preferred stock outstanding as of the closing date of the
offering will be automatically converted into 6,042,263 shares of common stock
on a 1 for 1 basis. No dividends will be payable with respect to such
preferred stock. The deferred offering costs associated with the offering will
be recorded as a reduction of stockholders' equity if the offering is
consummated. If the offering is not consummated, the deferred offering costs
will be charged to operations.
1998 Employee Stock Purchase Plan
In April 1998, the Company adopted the 1998 Employee Stock Purchase Plan
(the "Purchase Plan") covering an aggregate of 350,000 shares of common stock.
Under the Purchase Plan, the Board may authorize participation by eligible
employees, including officers, in periodic offerings following the
commencement of the Purchase Plan. The initial offering under the Purchase
Plan will commence on the effective date of the prospectus and terminate on
April 30, 2000.
Unless otherwise determined by the Board, employees are eligible to
participate in the Purchase Plan only if they are employed by the Company for
at least 20 hours per week and for at least five months per calendar year.
Employees who participate in an offering may have up to ten percent of their
earnings withheld pursuant to the Purchase Plan. The amount withheld is then
used to purchase shares of the common stock on specified dates determined by
the Board. The price of common stock purchased under the Purchase Plan will be
equal to 85% of the lower of the fair market value of the common stock at the
commencement date of each offering or the relevant purchase date. Employees
may end their participation in an offering at any time during the offering,
and participation ends automatically on termination of employment with the
Company.
In the event of a merger, reorganization, consolidation or liquidation
involving the Company, the Board has the discretion to provide that each right
to purchase common stock will be assumed or an equivalent right substituted by
the successor corporation or the Board may shorten this offering, and provide
for all sums collected by payroll deductions to be applied to purchase stock
immediately prior to such merger or other transaction. The Board has the
authority to amend or terminate the Purchase Plan, provided, however, that no
such action may adversely affect any outstanding rights to purchase common
stock.
1998 Director Option Plan
In April 1998, the Company adopted the 1998 Director Option Plan (the
"Director Plan") to provide for the automatic grant of options to purchase
shares of common stock to non-employee directors of the Company.
F-19
<PAGE>
GENVEC, INC.
NOTES TO FINANCIAL STATEMENTS--CONTINUED
DECEMBER 31, 1997 AND 1996
The maximum number of shares of common stock that may be issued pursuant to
options granted under the Director Plan is 130,000 shares. Each person who
becomes an outside director is automatically granted, on the date of such
person's election or appointment, an option to purchase 10,000 shares of
common stock. In addition, each outside director shall be granted an option to
purchase 5,000 shares of common stock on (i) the effective date of this
offering and (ii) the date of each of the Company's annual meetings of
stockholders provided such person is still an outside director and that such a
person shall have served on the date of the grant on the board for at least
the preceding six months. Each option granted under the Director Plan has a
term of ten years. The options vest over a four-year period. The exercise
price per share of options shall be 100% of the fair market value per share on
the date of the grant. Options granted under the Director Plan are generally
non-transferable. Unless otherwise terminated by the Board of Directors, the
Director Plan terminates automatically in April 2008. As of March 31, 1998, no
options to purchase shares of common stock had been granted under the Director
Plan.
(11) NEW FINANCIAL ACCOUNTING STANDARDS
Statement 130
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income.
Statement 130 establishes standards for the required reporting and display of
comprehensive income and its components in equal prominence with other
financial statements. Statement 130 was issued to address concerns over the
practice of reporting elements of comprehensive income directly in equity.
Statement 130 is effective for both interim and annual periods beginning
after December 15, 1997. Comparative financial statements provided for earlier
periods are required to be reclassified to reflect the provisions of this
Statement. On January 1, 1998, the Company adopted Statement 130. Statement
130 did not affect the current or prior period financial statement displays
presented by the Company.
Statement 131
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures About Segments of an
Enterprise and Related Information. Statement 131 establishes standards for
the way public business enterprises are to report information about operating
segments in annual financial statements and requires those enterprises to
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
Statement 131 is effective for financial statements for periods beginning
after December 15, 1997. In the initial year of application, comparative
information for earlier years is to be restated, unless it is impracticable to
do so. Statement 131 need not be applied to interim financial statements in
the initial year of its application, but comparative information for interim
periods in the initial year of application shall be reported in financial
statements for interim periods in the second year of application. It is not
anticipated that Statement 131 will have any material effect on current or
prior period disclosures presented by the Company.
F-20
<PAGE>
TREATMENT OF RESTENOSIS WITH GENE THERAPY
Restenosis, or re-narrowing of blood vessels, associated with angioplasty
and stent placement is a major problem in cardiovascular medicine. Vascular
damage caused by these procedures often produces proliferation of smooth
muscle cells and the inhibition of endothelial cell layer regrowth, leading to
vessel narrowing and impaired blood flow. The Company is currently developing
Ad.iNOS, an adenovirus vector containing the inducible nitric oxide synthase
gene, for the treatment of vascular damage associated with angioplasty and
other applications, such as arteriovenous grafts.
[Two figures of cross-sectional images of blood vessels from animal models of
restenosis illustrate the text immediately below the figures. Figure 1 is
taken from the control subject. Figure 2 is taken from the subject treated
with Ad.iNOS and shows the inhibition of vessel re-narrowing relative to
Figure 1.]
The Company's Ad.iNOS product candidate was evaluated using an animal model
of restenosis. Vascular injury was induced in a major blood vessel of the
animal through the introduction of a catheter, followed immediately by an
infusion of either Ad.iNOS or a control directly to the site of damage.
Examination several weeks later revealed evidence of smooth muscle cell
proliferation and significant vessel re-narrowing in the control group (figure
1). In contrast, vessel re-narrowing in Ad.iNOS-treated animals was inhibited
(figure 2). See "Risk Factors--Uncertainties Related to Clinical Development."
<PAGE>
[LOGO OF GENVEC APPEARS HERE]
<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, other than
underwriting discounts and commissions, payable by the Registrant in
connection with the sale of Common Stock being registered. All amounts are
estimates except the SEC registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee......................................... $ 11,025.63
NASD filing fee.............................................. 4,237.50
Printing and engraving costs................................. 130,000
Legal fees and expenses...................................... 400,000
Accounting fees and expenses................................. 150,000
Blue Sky fees and expenses................................... 10,000
Transfer Agent and Registrar fees............................ 10,000
Miscellaneous expenses....................................... 184,736.87
-----------
Total...................................................... $ 900,000
===========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law allows for the
indemnification of officers, directors and any corporate agents in the terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act of 1933, as amended (the "Act"). The Registrant's Restated
Certificate of Incorporation to be filed upon the closing of the offering to
which this Registration Statement relates (Exhibit 3.3 hereto) and the
Registrant's Bylaws (Exhibit 3.5 hereto) provides for indemnification of the
Registrant's directors, officers, employees and other agents to the extent and
under the circumstances permitted by the Delaware General Corporation Law. The
Registrant has also entered into agreements with its directors and executive
officers that require the Registrant among other things to indemnify them
against certain liabilities that may arise by reason of their status or
service as directors to the fullest extent not prohibited by Delaware law.
The Underwriting Agreement provides for indemnification by the Underwriters
of the Registrant, its directors and officers, and by the Registrant of the
Underwriters, for certain liabilities, including liabilities arising under the
Act, and affords certain rights of contribution with respect thereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since April 1995, the Registrant has issued and sold the following
unregistered securities (as adjusted to reflect the 5.9 to 1 reverse stock
split anticipated to be consummated immediately prior to the closing of the
offering contemplated hereby):
(1) From April 1, 1995 to March 31, 1998, Registrant granted options to
purchase 1,261,281 shares of Common Stock pursuant to its Amended and
Restated 1993 Stock Incentive Plan at exercise prices ranging from $.59 per
share to $4.13 per share.
(2) From April 1, 1995 to March 31, 1998, Registrant issued and sold an
aggregate of 363,159 shares of Common Stock to its employees, directors and
consultants upon exercise of stock options granted pursuant to Registrant's
Amended and Restated 1993 Stock Incentive Plan at exercise prices ranging
from $0.059 to $0.59 for an aggregate consideration of $1,266,994 .
(3) In September 1995, Registrant issued and sold an aggregate of
2,095,763 shares of Class C Preferred Stock to private investors for
aggregate cash consideration of $12,365,000.
II-1
<PAGE>
(4) In May 1996, Registrant issued and sold an aggregate of 96,852 shares
of Class D Preferred Stock for $1,000,000 to one investor.
(5) In October 1997, Registrant issued and sold an aggregate of 75,329
shares of Series E Preferred Stock to one investor for an aggregate cash
consideration of approximately $1.0 million.
(6) In December 1997, Registrant issued and sold an aggregate of 154,963
shares of Class E-1 Preferred Stock to one investor an aggregate cash
consideration of approximately $2.0 million.
There were no underwriters employed in connection with any of the above
transactions. See "Certain Transactions" in the form of the Prospectus
included herein.
The sales of the securities described in Items 15(1) and 15(2) were deemed
to be exempt from registration under the Securities Act in reliance on Rule
701 promulgated under Section 3(b)of the Securities Act as transactions
pursuant to compensatory benefit plans and contracts relating to compensation
as provided under such Rule 701. The sale of securities described in Items 15
(3) through 15 (6) were deemed to be exempt from registration under the
Securities Act in reliance on Section 4(2) of the Securities Act, or
Regulation D promulgated thereunder, as transactions by an issuer not
involving a public offering. The recipients of securities in each such
transaction represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates and other instruments issued in such transactions. All recipients
either received adequate information about the Registrant or had access,
through employment or other relationships, to such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1++ Restated Certificate of Incorporation of the Registrant, as currently
in effect.
3.2 Restated Certificate of Incorporation of the Registrant, to be filed
prior to the closing of the offering.
3.3 Restated Certificate of Incorporation, to be filed immediately
following the offering.
3.4++ Restated Bylaws of the Registrant as currently in effect.
3.5 Restated Bylaws, to be effective upon the closing of the offering.
4.1* Specimen Common Stock Certificate
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1++ Form of Indemnification Agreement for Directors and Officers.
10.2 Amended and Restated 1993 Stock Incentive Plan and forms of agreements
thereunder.
10.3 1998 Employee Stock Purchase Plan.
10.4 1998 Director Option Plan.
10.5* +Research, Development and Collaboration Agreement dated July 21, 1997
between the Warner-Lambert Company and the Registrant.
10.6* +Stock Purchase Agreement dated July 21, 1997 between the Warner-
Lambert Company and the Registrant.
10.7* +License Agreement dated May 31, 1996 between Scios, Inc. and the
Registrant.
10.8* +Stock Purchase Agreement dated September 26, 1997 between Fuso
Pharmaceutical Industries, Ltd. and the Registrant.
10.9* +Collaboration Agreement dated September 26, 1997 between Fuso
Pharmaceutical Industries, Ltd. and the Registrant.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.10* +Commercialization Agreement dated September 26, 1997 between Fuso
Pharmaceutical Industries Ltd. and the Registrant.
10.11* +License Agreement dated February 1, 1998 between Asahi Chemical
Industry Co., Ltd. and the Registrant.
10.12* +Sponsored Research Agreement dated April 1, 1998 between Cornell
University and the Registrant.
10.13* +Amended and Restated Exclusive License Agreement dated April 1, 1993
between Cornell University and the Registrant.
10.14* Lease Agreement between Trizechahn Twinbrook Metro Limited
Partnership, a Maryland limited partnership.
10.15* Lease Agreement dated September 1, 1997 between Biomedical Institute
and Registrant.
10.16++ Letter Agreement dated March 9, 1995 between the Registrant and Paul
H. Fischer.
10.17++ Letter Agreement dated June 6, 1993 between the Registrant and Imre
Kovesdi.
10.18++ Letter Agreement dated March 9, 1995 between the Registrant and Thomas
E. Smart.
10.19++ Consulting Agreement dated April 28, 1998 between the Registrant and
Herbert J. Conrad.
10.20 Registration Rights Agreement dated April 22, 1998 among the
Registrant and certain stockholders.
23.1 Consent of KPMG Peat Marwick LLP.
23.2* Consent of Wilson Sonsini Goodrich & Rosati (included in Exhibit 5.1).
23.3++ Consent of Leydig, Voit & Mayer, Ltd.
24.1++ Power of Attorney (see page II-5 of Registration Statement filed on
April 30, 1998).
27.1++ Financial Data Schedule (available in EDGAR format only).
</TABLE>
- --------
++Previously filed with original Registration Statement on April 30, 1998.
* To be filed by amendment.
+ Confidential treatment requested.
(b) FINANCIAL STATEMENT SCHEDULES
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes that:
(a) It will provide to the Underwriters at the closing as specified in
the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
(b) Insofar as indemnification by the Registrant for liabilities arising
under the Securities Act may be permitted to directors, officers and
controlling persons of the Registrant, 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 counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-3
<PAGE>
(c) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the 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 the
registration statement as of the time it was declared effective.
(d) 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.
The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar volume of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
(b) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment 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;
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN
ROCKVILLE, MARYLAND, ON THE 21ST DAY OF MAY, 1998.
GenVec, Inc.
/s/ Paul H. Fischer
By___________________________________
Paul H. Fischer, President and
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Paul H. Fischer Director, President
- ------------------------------------- and Chief Executive May 21, 1998
(PAUL H. FISCHER) Officer (Principal
Executive Officer;
Principal Financial
and Accounting
Officer)
Director
Hal S. Broderson * May 21, 1998
- -------------------------------------
(HAL S. BRODERSON)
Director
Herbert J. Conrad * May 21, 1998
- -------------------------------------
(HERBERT J. CONRAD)
Director
Harry T. Rein * May 21, 1998
- -------------------------------------
(HARRY T. REIN)
Director
Wendell Wierenga * May 21, 1998
- -------------------------------------
(WENDELL WIERENGA)
Director
Gregory Zaic * May 21, , 1998
- -------------------------------------
(GREGORY ZAIC)
/s/ Paul H. Fischer
By:__________________________________
Paul H. Fischer, Attorney-in-Fact
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1++ Restated Certificate of Incorporation of the Registrant, as currently
in effect.
3.2 Restated Certificate of Incorporation of the Registrant, to be filed
prior to the closing of the offering.
3.3 Restated Certificate of Incorporation, to be filed immediately
following the offering.
3.4++ Restated Bylaws of the Registrant as currently in effect.
3.5 Restated Bylaws, to be effective upon the closing of the offering.
4.1* Specimen Common Stock Certificate
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1++ Form of Indemnification Agreement for Directors and Officers.
10.2 Amended and Restated 1993 Stock Incentive Plan and forms of agreements
thereunder.
10.3 1998 Employee Stock Purchase Plan.
10.4 1998 Director Option Plan.
10.5* +Research, Development and Collaboration Agreement dated July 21, 1997
between the Warner-Lambert Company and the Registrant.
10.6* +Stock Purchase Agreement dated July 21, 1997 between the Warner-
Lambert Company and the Registrant.
10.7* +License Agreement dated May 31, 1996 between Scios, Inc. and the
Registrant.
10.8* +Stock Purchase Agreement dated September 26, 1997 between Fuso
Pharmaceutical Industries, Ltd. and the Registrant.
10.9* +Collaboration Agreement dated September 26, 1997 between Fuso
Pharmaceutical Industries, Ltd. and the Registrant.
10.10* +Commercialization Agreement dated September 26, 1997 between Fuso
Pharmaceutical Industries Ltd. and the Registrant.
10.11* +License Agreement dated February 1, 1998 between Asahi Chemical
Industry Co., Ltd. and the Registrant.
10.12* +Sponsored Research Agreement dated April 1, 1998 between Cornell
University and the Registrant.
10.13* +Amended and Restated Exclusive License Agreement dated April 1, 1993
between Cornell University and the Registrant.
10.14* Lease Agreement between Trizechahn Twinbrook Metro Limited
Partnership, a Maryland limited partnership.
10.15* Lease Agreement dated September 1, 1997 between Biomedical Institute
and Registrant.
10.16++ Letter Agreement dated March 9, 1995 between the Registrant and Paul
H. Fischer.
10.17++ Letter Agreement dated June 6, 1993 between the Registrant and Imre
Kovesdi.
10.18++ Letter Agreement dated March 9, 1995 between the Registrant and Thomas
E. Smart.
10.19++ Consulting Agreement dated April 28, 1998 between the Registrant and
Herbert J. Conrad.
10.20 Registration Rights Agreement dated April 22, 1998 among the
Registrant and certain stockholders.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
23.1 Consent of KPMG Peat Marwick LLP.
23.2* Consent of Wilson Sonsini Goodrich & Rosati (included in Exhibit 5.1).
23.3++ Consent of Leydig, Voit & Mayer, Ltd.
24.1++ Power of Attorney (see page II-5 of Registration Statement filed on
April 30, 1998).
27.1++ Financial Data Schedule (available in EDGAR format only).
</TABLE>
- --------
++Previously filed with original Registration Statement on April 30, 1998.
* To be filed by amendment.
+ Confidential treatment requested.
<PAGE>
EXHIBIT 3.2
------------
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
GENVEC, INC.
The undersigned, Paul H. Fischer, President of GenVec, Inc., a corporation
organized and existing under the laws of the State of Delaware (the
"Corporation"), does hereby certify as follows:
1. The present name of the Corporation is GenVec, Inc.
2. The original Certificate of Incorporation of the Corporation was
filed in the Office of the Secretary of State of the State of Delaware on
December 7, 1992.
3. This Amended and Restated Certificate of Incorporation was duly
adopted in accordance with the provisions of Sections 242 and 245 of the
Delaware General Corporation Law by the Board of Directors of the Corporation.
4. This Amended and Restated Certificate of Incorporation was approved by
written consent of the stockholders pursuant to Section 228 of the Delaware
General Corporation Law.
5. The Certificate of Incorporation of the Corporation is hereby amended
and restated in its entirety as follows:
FIRST: The name of the Corporation is:
GENVEC, INC.
SECOND: The address of its registered office in the State of Delaware is:
Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County,
Delaware 19801. The name of its registered agent at such address is: THE
CORPORATION TRUST COMPANY.
THIRD: The nature of the business or purposes to be conducted or
promoted is:
To have unlimited power to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of
Delaware.
<PAGE>
FOURTH: In furtherance and not in limitation of the powers conferred by
statute, the board of directors of the Corporation is expressly authorized to
make, alter or repeal the Bylaws of the Corporation.
FIFTH: Elections of directors need not be by written ballot unless the
Bylaws of the Corporation shall so provide.
SIXTH: To the fullest extent permitted by the Delaware General
Corporation Law as the same exists or may hereafter be amended, no director of
the Corporation shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
Neither any amendment nor repeal of this Article, nor the adoption of any
provision of this Certificate of Incorporation inconsistent with this Article,
shall eliminate or reduce the effect of this Article in respect of any matter
occurring, or any cause of action, suit or claim that, but for this Article,
would accrue or arise, prior to such amendment, repeal or adoption of an
inconsistent provision.
SEVENTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of Title 8 of the Delaware Code
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be, to
be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
the Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
EIGHTH: Immediately following the Reverse Split (as defined below), the
aggregate number of shares which the Corporation shall have authority to issue
is 55,000,000 of which 50,000,000 shall be designated as Common Stock, par value
$0.001 per share ("Common Stock"), 226,099 shall be designated as Class A
Convertible Preferred Stock, par value $0.001 per share ("Class A Preferred
Stock"), 1,959,444 shall be designated as Class B Convertible Preferred Stock,
par value $0.001 per share, ("Class B Preferred Stock"), 3,570,332 shall be
designated as Class C Convertible Preferred Stock, par value $0.001 per share
("Class C Preferred Stock"), 96,852 shall be designated as Class D Convertible
Preferred Stock, par value $0.001 per share ("Class D Preferred Stock"), 75,329
shall be designated as Class E Convertible Preferred Stock, par value $0.001 per
share ("Class E Preferred Stock"), 154,963 shall be designated as Class E1
Convertible Preferred Stock, par value $0.001 per share ("Class E1 Preferred
Stock") (the Class A Preferred Stock, Class B
-2-
<PAGE>
Preferred Stock, Class C Preferred Stock, Class D Preferred Stock, Class E
Preferred Stock and Class E1 Preferred Stock, unless otherwise indicated, are
referred to collectively as the "Preferred Stock") and 5,000,000 shares shall be
undesignated Preferred Stock. Upon the closing of a Qualifying Public Offering
(as defined below) and the concomitant Mandatory Conversion (as defined below)
of the outstanding Preferred Stock into Common Stock, such Preferred Stock shall
automatically be canceled and retired and cease to exist.
Effective immediately upon the filing of this Amended and Restated
Certificate of Incorporation, there shall be a one for 5.9 reverse stock split
(the "Reverse Split") pursuant to which each 5.9 outstanding shares of Common
Stock shall be consolidated and converted, automatically and without further
action, into one share of Common Stock and each 5.9 outstanding shares of each
class of Preferred Stock shall be consolidated and converted, automatically and
without further action, into one share of Preferred Stock of such class. Such
combination shall be effected on a certificate-by-certificate basis. No
fractional share of Common Stock or Preferred Stock shall be issued in
connection with such conversion, and in lieu of any fractional share to which a
holder of Common Stock or Preferred Stock would otherwise be entitled, the
Corporation shall pay to such holder cash equal to the product of such fraction
multiplied by the fair market value of one share of Common Stock (or Preferred
Stock as the case may be) on the date of conversion, as determined in good faith
by the Board of Directors of the Corporation. Each reference in this Certificate
of Incorporation to an amount or price per share of the Corporation's capital
stock has been adjusted to reflect the Reverse Split.
The undesignated 5,000,000 shares of Preferred Stock may be issued
from time to time in one or more series. The Board of Directors is authorized
to determine the number of shares of any such series. The Board of Directors is
also authorized to determine or alter the powers, designations, preferences,
rights and restrictions to be imposed upon any wholly unissued series of
Preferred Stock and, within the limits and restrictions stated in any resolution
or resolutions of the Board of Directors originally fixing the number of shares
constituting any series, to increase (but not above the total number of
authorized shares of the class) or decrease (but not below the number of shares
of such series then outstanding) the number of shares of any series subsequent
to the issue of shares of that series.
The Corporation shall from time to time in accordance with the laws of
the State of Delaware increase the authorized amount of its Common Stock if at
any time the number of shares of Common Stock remaining unissued and available
for issuance shall not be sufficient to permit conversion of the Preferred
Stock.
The following is a statement of the designations, preferences,
limitations and relative rights in respect of the shares of each class of stock
of the Corporation:
A. Common Stock.
------------
(1) Voting Rights. Each holder of record of Common Stock shall
-------------
have the right to one vote for each share of Common Stock standing in the name
of such holder on the books of the Corporation.
-3-
<PAGE>
(2) Dividends. Subject to the rights of the holders of the
---------
Preferred Stock, each holder of record of Common Stock will be entitled to
dividends in such amounts and at such times as may be declared by the Board of
Directors.
B. Preferred Stock.
---------------
(1) Dividends. In the event that the Corporation declares or pays
---------
any dividend on the Common Stock or makes, directly or indirectly, any other
distribution in respect to the Common Stock, the holders of Preferred Stock
shall be entitled to participate with the holders of Common Stock in any such
dividends paid or set aside for payment, such that the holders of Preferred
Stock shall receive, with respect to each share of Preferred Stock, an amount
equal to (a) the dividend payable with respect to each share of Common Stock
multiplied by (b) the number of shares (and fraction of a share, if any) of
Common Stock into which such share of Preferred Stock is convertible as of the
record date for such dividend.
(2) Voting Rights.
-------------
(a) Except as otherwise provided herein or by law, the
holders of Preferred Stock shall have full voting rights and powers, they shall
be entitled to vote on all matters as to which holders of the Common Stock shall
be entitled to vote, they shall vote together with the holders of the Common
Stock as a single class, and they shall be entitled to one vote for each share
of Common Stock which would be held by them if all of their shares of Preferred
Stock would be converted into shares of Common Stock under Section B(5) of this
Article.
(b) Except as otherwise provided herein or by law, the vote
or consent of at least two-thirds of the outstanding shares of the Class C
Preferred Stock voting as a separate class shall be required for the following
actions:
(i) any change in the rights, preferences, or
privileges of the Class C Preferred Stock;
(ii) any amendment, repeal or addition of any
provision of or to the ByLaws, if such action would
adversely affect the preferences, rights, privileges or
powers of, or restrictions provided for the benefit of, the
Class C Preferred Stock;
(iii) the authorization of any class of equity
securities ranking prior to or having preference over the
Class C Preferred Stock with respect to dividends,
redemption or assets of the Corporation;
(iv) the reclassification of any shares of Common
Stock into shares of any class of equity securities ranking
prior to or having preference over the Class C Preferred
Stock with respect to dividends, redemption or assets of the
Corporation;
-4-
<PAGE>
(v) the merger or consolidation of the Corporation into or
with any other corporation, the sale of all or substantially all
of the Corporation's assets, or the liquidation of the assets of
the Corporation, provided, however, that no such vote or consent
-------- -------
under this Section B(2) (b) (v) shall be required if the
aggregate price to be paid to the Corporation's stockholders in
the merger, consolidation, sale or liquidation is equal to or
greater than an amount determined by multiplying (x) $8.85 per
share, as adjusted to reflect any change in the number of shares
of the Corporation's Common Stock as a result of a stock split,
stock dividend, distribution payable in shares of the
Corporation's Common Stock or other reclassification after May
__, 1998, by (y) the number of outstanding shares of the
Corporation's Common Stock (for purposes of this determination
only, a securityholder holding capital stock of the Corporation
convertible into the Corporation's Common Stock shall be treated
as having converted all such convertible stock into the
Corporation's Common Stock at the applicable conversion rate,
pursuant to Section B(5) of this Article, in effect at the time
of this determination); and
(vi) the acquisition by the Corporation of any corporation
or other business entity if such a transaction involves (A) the
issuance of equity securities of the Corporation resulting in the
new securityholders having more than 25 percent of the voting
power pursuant to Sections A(1) and B(2) (a) of this Article or
(B) the payment of cash consideration equivalent to 25% of the
product of (x) the sum of the number of shares of Common Stock
and Preferred Stock then outstanding and the number of such
shares underlying options and other rights to acquire such shares
(irrespective of whether such shares, options or other rights are
conditional or unvested) times (y) the then most recent price per
share at which the Corporation sold any shares of Preferred Stock
in an offering that yielded gross proceeds of not less than
$5,000,000 to the Corporation.
(c) Except as set forth in article Tenth below, whenever holders
of the Preferred Stock or Common Stock, separately or as a single class, are
required or permitted to take any action, such action may be taken without a
meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted.
(3) Rights of Liquidation.
---------------------
-5-
<PAGE>
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation (any such event being hereinafter
referred to as a "Liquidation"), before any distribution of assets of the
Corporation shall be made to or set apart for the holders of the Common Stock,
the holders of the Preferred Stock shall be entitled to receive payment out of
such assets of the Corporation in an amount per share equal to $2.95 per share
for each share of Class A Preferred Stock held by such holder, $5.90 per share
for each share of Class B Preferred Stock or Class C Preferred Stock held by
such holder, $10.325 per share for each share of Class D Preferred Stock held by
such holder, $13.275 per share for each share of Class E Preferred Stock held by
such holder and $12.90625 per share for each share of Class E1 Preferred Stock
held by such holder (such amounts being referred to herein as "Liquidation
Preference") plus any declared but unpaid dividends on such shares of Preferred
Stock. If the assets of the Corporation available for distribution to the
holders of the Preferred Stock shall not be sufficient to make in full the
payments required by this Section B(3)(a), such assets shall be distributed
ratably among the holders of the Preferred Stock based upon the aggregate
Liquidation Preferences of the shares of Preferred Stock held by each such
holder.
(b) If the assets of the Corporation available for distribution to
stockholders exceed the aggregate amounts payable pursuant to Section B(3)(a) of
this Article above, the remainder of such assets shall be distributed to the
holders of Preferred Stock and Common Stock on a pro rata basis, with the amount
distributable to the holders of Preferred Stock to be computed on the basis of
the number of shares of Common Stock which would be held by them if immediately
prior to the Liquidation all of the outstanding shares of such Preferred Stock
had been converted into shares of Common Stock under Section B(5)(a) of this
Article.
(c) A merger or consolidation involving the Corporation in which the
Corporation is not the surviving entity and a sale, lease or transfer of all or
substantially all of the assets of the Corporation shall, at the option of
holders representing a majority of the Preferred Stock voting as a single class,
be deemed a Liquidation, unless in connection with such transaction, each holder
of Preferred Stock receives a preferred stock having terms and conditions which
are no less favorable than the terms and conditions of the Preferred Stock held
by such holder prior to the transaction.
(d) Notwithstanding the provisions contained in Section B(3)(c) of
this Article above, in the event of a merger or consolidation involving the
Corporation in which the Corporation is not the surviving entity, or a sale,
lease or transfer of all or substantially all of the assets of the Corporation,
in which a holder of Preferred Stock would receive cash and/or marketable
securities (i.e., securities registered under the Securities Act of 1933, as
----
amended, at the time of delivery, or securities committed to be so registered
within 60 days after delivery) in an amount less than the aggregate Liquidation
Preference of the shares of Preferred Stock held by such holder, then holders of
a majority of the Preferred Stock then outstanding, voting as a single class,
may elect, in lieu of all other rights under the terms of the transaction or
this Article, to receive an amount equal to their aggregate Liquidation
Preference for such shares of Preferred Stock. If the holders make such an
election, each such holder shall have a priority on such holder's pro rata
portion of all cash and marketable securities received in such transaction to
the extent of the aggregate Liquidation
-6-
<PAGE>
Preference for such holder's shares of Preferred Stock. Such election shall be
made by the holders by written notice to the Corporation within 30 days after
the date of stockholder approval of the transaction (or within 30 days after
receiving notice of such transaction from the Corporation if the transaction is
not submitted for stockholder approval).
(e) In the event that the Corporation shall, at any time after
May __, 1998, issue any shares of Preferred Stock (i) by stock dividend or any
other distribution upon any stock of the Corporation payable in shares of
Preferred Stock, or (ii) by a subdivision of its shares of outstanding Preferred
Stock, by reclassification or otherwise, the Liquidation Preference then in
effect shall be reduced proportionately, and, in like manner, in the event of
any combination of shares of Preferred Stock, by reclassification or otherwise,
the Liquidation Preference then in effect shall be proportionately increased;
provided, however, that the Liquidation Preference shall not be adjusted as a
result of the Reverse Split.
(4) Actions Requiring the Consent of the Holders of the Preferred
-------------------------------------------------------------
Stock. As long as any shares of Preferred Stock remain outstanding, the consent
- -----
of the holders of at least a majority of the votes which holders of Preferred
Stock are entitled to cast, given in person or by proxy, either in writing
without a meeting or by vote at a meeting called for such purpose, shall be
necessary for effecting or validating any amendment, alteration or repeal of any
of the provisions of the Certificate of Incorporation or the By-Laws of the
Corporation which (a) increases the number of authorized shares of any class of
capital stock, (b) adversely affects the rights, preferences or powers of any
class of Preferred Stock or of the holders thereof or (c) decreases the required
time for the giving of any notice to which the holders of Preferred Stock may be
entitled.
(5) Conversion.
----------
(a) Right To Convert. A holder of record of any share or shares
----------------
of Class A Preferred Stock shall have the right at any time, at such holder's
option, to convert, without the payment of any additional consideration, each
share of Class A Preferred Stock held by such holder into that number of fully
paid and nonassessable shares of Common Stock as is determined by dividing (i)
..50 by (ii) the Conversion Factor (as defined in Section B(5)(d) of this Article
below) then in effect for the Class A Preferred Stock. A holder of record of any
share or shares of Class B Preferred Stock, Class C Preferred Stock, Class D
Preferred Stock, Class E Preferred Stock or Class E1 Preferred Stock shall have
the right at any time, at such holder's option, to convert, without the payment
of any additional consideration, each share of Class B Preferred Stock, Class C
Preferred Stock, Class D Preferred Stock, Class E Preferred Stock or Class E1
Preferred Stock held by such holder into that number of fully paid and
nonassessable shares of Common Stock as is determined by dividing (i) 1.00 by
(ii) the Conversion Factor (as defined in Section B(5)(d) of this Article below)
then in effect for the Class B Preferred Stock, Class C Preferred Stock, Class D
Preferred Stock, Class E Preferred Stock or Class E1 Preferred Stock, as
applicable. Notwithstanding the foregoing, the provisions of B(5)(d)(i) shall
not apply to the Conversion Factor for Class D Preferred Stock, Class E
Preferred Stock or Class E1 Preferred Stock. No fractional shares or scrip
representing fractional shares shall be issued upon the conversion of any
Preferred Stock. With respect to any fraction of a share of Common Stock called
for upon any conversion after completion of the
-7-
<PAGE>
calculation of the aggregate number of shares of Common Stock to be issued to
such holder, the Corporation shall pay to such holder an amount in cash equal to
any fractional share to which such holder would be entitled, multiplied by the
current market value of a share, as determined in good faith by the Board of
Directors of the Corporation.
(b) Mechanics of Conversion. If the holder of shares of Preferred
-----------------------
Stock desires to exercise such right of conversion, such holder must give
written notice to the Corporation (the "Conversion Notice") of the election by
such holder to convert a stated number of shares of Preferred Stock (the
"Conversion Shares") into shares of Common Stock on the date specified in the
Conversion Notice (which date shall not be earlier than the date on which the
Corporation receives the Conversion Notice (the "Conversion Date"), and by
surrender of the certificate or certificates representing such Conversion
Shares. The Conversion Notice shall also contain a statement of the name or
names (with addresses) in which the certificate or certificates for Common Stock
shall be issued. Promptly after the Conversion Date and the surrender of the
Conversion Shares, the Corporation shall issue and deliver, or cause to be
delivered, to the holder of the Conversion Shares or such holder's nominee or
nominees, a certificate or certificates for the number of shares of Common Stock
issuable upon the conversion of such Conversion Shares. Such conversion shall
be deemed to have been effected as of the close of business on the Conversion
Date, and the person or persons entitled to receive the shares of Common Stock
issuable upon conversion shall be treated for all purposes as the holder or
holders of record of such shares of Common Stock as of the close of business on
such date.
(c) Common Stock Reserved. The Corporation shall at all times reserve
---------------------
and keep available out of its authorized but unissued Common Stock, solely for
issuance upon the conversion of shares of Preferred Stock as herein provided,
such number of shares of Common Stock as shall from time to time be issuable
upon the conversion of all of the shares of Preferred Stock at the time
outstanding.
(d) Conversion Factor. The initial conversion factor for the Class A
-----------------
Preferred Stock shall be .50, the initial conversion factor for the Class B
Preferred Stock, the Class C Preferred Stock, the Class D Preferred Stock, the
Class E Preferred Stock and the Class E1 Preferred Stock shall be 1.00, subject
to adjustment, in each case, in accordance with the provisions in this Section
B(5)(d), except that the provisions of B(5)(d)(i) shall not apply to the
Conversion Factor for Class D Preferred Stock, Class E Preferred Stock or Class
E1 Preferred Stock; provided, however, that the Liquidation Preference shall not
be adjusted as a result of the Reverse Split. Such respective conversion
factors in effect from time to time, as adjusted pursuant to the applicable
provisions of this Section B(5)(d), are referred to herein as the "Conversion
Factor" for the Class A Preferred Stock, the Class B Preferred Stock, the Class
C Preferred Stock, the Class D Preferred Stock, Class E Preferred Stock or Class
E1 Preferred Stock, as applicable. All of the remaining provisions of this
Section B(5)(d) shall apply separately to the respective Conversion Factors in
effect from time to time; provided, however, that the provisions of B(5)(d)(i)
-----------------
shall not apply to the Conversion Factor for Class D Preferred Stock, Class E
Preferred Stock or Class E1 Preferred Stock.
-8-
<PAGE>
(i) In the event that the Corporation shall, at any time or from time
to time, issue or sell any shares of the capital stock of the Corporation
(including treasury shares, but excluding (v) 226,099 shares of Class A
Preferred Stock, 3,570,332 shares of Class C Preferred Stock, 96,852 shares of
Class D Preferred Stock and 75,329 shares of Class E Preferred Stock, (w) an
aggregate of 3,588,066 shares of Common Stock (plus any additional shares
reserved under the 1993 Stock Incentive Plan, as amended, pursuant to its terms)
and an aggregate of 1,959,444 shares of Class B Preferred Stock that have been
issued, have been reserved for issuance or will be issued pursuant to options,
warrants or other commitments which have been granted or executed as of May __,
1998 or will be granted or executed pursuant to the Corporation's 1993 Stock
Incentive Plan, as amended, (x) any shares of the capital stock of the
Corporation issued pursuant to the Stock Purchase Agreement, dated July 21,
1997, between the Corporation and Warner-Lambert Company, as the same may be
amended from time to time (including without limitation 154,963 shares of Class
E1 Preferred Stock), (y) any shares of the capital stock of the Corporation
issued in connection with equipment financing, sponsored research (including,
but not limited to, those shares issuable upon exercise of a warrant being
granted to Cornell University in conjunction with its agreement with the
Corporation), collaboration, technology licensing, development agreements or any
other strategic partnerships approved by the Board of Directors and (z) the
shares of Common Stock issuable upon conversion of the Preferred Stock), then,
immediately upon such issuance or sale, the Conversion Factor shall be reduced
as follows:
(A) The Conversion Factor shall be changed to a number
determined by multiplying the Conversion Factor in effect immediately prior to
such issuance by the following fraction:
A + B
---
C
-----------
A + D
wherein:
A = the number of Outstanding Shares (as defined below)
immediately prior to the subject issuance;
B = the aggregate consideration in dollars for the shares then
being issued, expressed as an absolute number;
C = the Conversion Factor in effect immediately prior to the
subject issuance with respect to the applicable class of
Preferred Stock; and
D = the number of shares then being issued.
-9-
<PAGE>
The applicable Conversion Factor shall be further reduced from time to time
thereafter whenever any shares are so issued or converted for a price per share
lower than the amount of the applicable Conversion Factor, then in effect, as
adjusted prior to that date.
(B) In the event that any shares shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount received by the
Corporation therefor, without deduction of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the Corporation in
connection therewith. In the event that any shares shall be issued for a
consideration other than cash, the amount of the consideration other than cash
received by the Corporation shall be deemed to be the fair value of such
consideration, without deduction of any expenses incurred or any underwriting
commissions or concessions paid or allowed by the Corporation in connection
therewith. Whenever shares are issued upon the exercise of warrants, options or
other conversion rights, the consideration received therefor shall include both
the consideration paid upon the issuance and upon the exercise of such warrant,
option or other right.
(C) In the event that the Corporation shall in any manner grant
(whether directly or by assumption in a merger or otherwise) any rights to
subscribe for or to purchase any Common Stock or securities convertible into
Common Stock ("Convertible Securities"), or any options for the purchase of any
Common Stock or Convertible Securities, whether or not such rights or options or
the right to convert or exchange any such Convertible Securities are immediately
exercisable, and the price per share for which shares of Common Stock issuable
upon the exercise of such rights or options or upon conversion or exchange of
such Convertible Securities (determined by dividing (I) the total amount, if
any, received or receivable by the Corporation as consideration for the granting
of such rights or options, plus the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the exercise of such
rights or options, or plus, in the case of any Convertible Securities or rights
or options to purchase Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable upon the issue or sale of such
Convertible Securities and upon the conversion or exchange thereof, by (II) the
total maximum number of shares of Common Stock issuable upon the exercise of
such rights or options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such rights or options)
shall be less than the Conversion Factor in effect immediately prior to the time
of the granting of such rights or options, then the total maximum number of
shares of Common Stock issuable upon the exercise of such rights or options or
upon conversion or exchange of all such Convertible Securities issuable or
issuable upon the exercise of such rights or options shall be deemed to be
outstanding as of the date of the granting of such rights or options and to have
been issued for such price per share, with the effect on the applicable
Conversion Factor specified in Section (5)(d)(i) of this Article. No further
adjustment of the applicable Conversion Factor shall be made upon the actual
issue of such Common Stock or upon the actual issue of such Convertible
Securities upon exercise of such rights or options or upon the actual issue of
such Common Stock upon conversion or exchange of such Convertible Securities.
(D) If the purchase price provided for in any right or option referred
to in Section B(5)(d)(i)(C) of this Article, or the additional consideration, if
any, payable upon the conversion or exchange of any Convertible Securities, or
the rate at which any
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<PAGE>
Convertible Securities are convertible into or exchangeable for Common Stock
shall change (other than under or by reason of provisions designed to protect
against dilution), the Conversion Factor then in effect hereunder shall
forthwith be readjusted (increased or decreased, as the case may be) to the
Conversion Factor which would have been in effect at such time had such rights,
options or Convertible Securities still outstanding provided for such changed
purchase price, additional consideration or conversion rate, as the case may be,
at the time initially granted, issued or sold.
(E) Notwithstanding the foregoing, upon the consent of the holders of
two-thirds of the applicable class of Preferred Stock affected and then
outstanding, if the Conversion Factor for the applicable class of Preferred
Stock, as set forth in this Section B(5)(d)(i) otherwise would be reduced, no
such reduction in the Conversion Factor for the applicable class of Preferred
Stock, as set forth in this Section B(5)(d)(i), shall occur.
(F) Notwithstanding the foregoing, if any holder of shares of
Preferred Stock is entitled to exercise the preemptive rights (the "Preemptive
Right") set forth in Section 3 of the Preemptive and Other Rights Agreement
dated April 22, 1998, (the "Preemptive Rights Agreement"), as the same may be
amended from time to time, which would, absent the provisions of this subsection
(F), result in a reduction of the Conversion Factor applicable to shares of such
holder's Preferred Stock pursuant to Section B(5)(d)(i) of this Article, and if
such holder (a "Non-Participating Holder") does not, by exercise of such
holder's Preemptive Right, acquire not less than such holder's "Proportionate
Percentage" (as defined in Section 3.1 of the Preemptive Rights Agreement) of
the Issuance, then all of such holder's shares of Class A Preferred Stock, Class
B Preferred Stock and Class C Preferred Stock shall automatically, and without
further action on the part of such holder, be converted effective upon, subject
to and concurrently with consummation of the Issuance (the "Issuance Date") as
follows: each share of Class A Preferred Stock held by such Non-Participating
Holder shall be converted into one share of a newly created series of preferred
stock (having such number of shares as the Board of Directors may by resolution
fix) which such class shall be identical in all respects to the Class A
Preferred Stock, except that the Conversion Factor of such class shall be fixed
immediately prior to the Issuance Date and shall be subject to no further
adjustments pursuant to Section B(5)(d)(i) of this Article; each share of Class
B Preferred Stock held by such Non-Participating Holder shall be converted into
one share of a newly created class of preferred stock (having such number of
shares as the Board of Directors may by resolution fix) which such class shall
be identical in all respects to the Class B Preferred Stock, except that the
Conversion Factor of such class shall be fixed immediately prior to the Issuance
Date and shall be subject to no further adjustments pursuant to Section
B(5)(d)(i) of this Article; and each share of Class C Preferred Stock held by
such Non-Participating Holder shall be converted into one share of a newly
created class of preferred stock (having such number of shares as the Board of
Directors may by resolution fix) which such class shall be identical in all
respects to the Class C Preferred Stock, except that the Conversion Factor of
such class shall be fixed immediately prior to the Issuance Date and shall be
subject to no further adjustments pursuant to Section B(5)(d)(i) of this
Article. The Board of Directors of the Corporation shall take all necessary
actions to designate each such new class. Upon such conversion, the shares of
Class A Preferred Stock, Class B Preferred Stock and Class C Preferred Stock so
converted shall be canceled and not subject to reissuance, but
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<PAGE>
instead shall be redesignated by the Board of Directors of the Corporation in
accordance with the terms of this Section B(5)(d)(i)(F).
(ii) Each adjustment in a Conversion Factor shall be
calculated to the nearest tenth of a cent.
(iii) As used in this Section B(5)(d), the term
"Outstanding Shares" shall be deemed to include the number of issued and
outstanding shares of Common Stock, plus the number of shares of Common Stock
issuable upon the conversion of the issued and outstanding shares of Preferred
Stock, but shall not include the new shares of Common Stock then being issued by
the Corporation.
(iv) In the event that the Corporation shall, at any
time after May __, 1998, issue any shares of Common Stock (A) by stock dividend
or any other distribution upon any stock of the Corporation payable in shares of
Common Stock or in shares of Preferred Stock, or (B) by subdivision of its
shares of outstanding Common Stock, by reclassification or otherwise, the
Conversion Factor then in effect shall be reduced proportionately, and, in like
manner, in the event of any combination of shares of Common Stock, by
reclassification or otherwise, the Conversion Factor then in effect shall be
proportionately increased; provided, however, that the Conversion Factor shall
not be adjusted as a result of the Reverse Split.
(v) If any capital reorganization or
reclassification of the Common Stock of the Corporation, or consolidation or
merger of the Corporation with or into another corporation, or the sale or
conveyance of all or substantially all of its assets to another corporation
shall be effected, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
shall be made whereby the holders of the Preferred Stock shall thereafter have
the right to receive, in lieu of the shares of Common Stock of the Corporation
immediately theretofore receivable with respect to such shares of Preferred
Stock upon the exercise of their conversion rights, such shares of stock,
securities or assets as would have been issued or payable with respect to or in
exchange for the number of outstanding shares of such Common Stock immediately
theretofore receivable with respect to such shares of Preferred Stock upon the
exercise of such rights had such reorganization, reclassification,
consolidation, merger or sale not taken place. In any such case, appropriate
provision shall be made with respect to the rights and interests of the holders
of the Preferred Stock to the end that such conversion rights (including,
without limitation, provisions for adjustment of the applicable Conversion
Factor) shall thereafter be applicable, as nearly as may be practicable in
relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise thereof. The Corporation shall not effect any such
consolidation, merger or sale, unless it provides the holders of the Preferred
Stock at least 30 days advance notice thereof, and prior to or simultaneously
with the consummation thereof the successor corporation (if other than the
Corporation) resulting from such consolidation or merger or the corporation
purchasing such assets, shall assume by written instrument, executed and mailed
or delivered to the holders of the Preferred Stock, the obligation to deliver to
such holders the shares of stock, securities or assets as, in accordance with
the foregoing provisions, such holders may be entitled to receive upon
conversion of the shares of Preferred Stock held by such holder.
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<PAGE>
(vi) If any event occurs as to which the other provisions of this
Section B(5)(d) are not strictly applicable, or if strictly applicable would not
fairly protect the conversion rights of the Preferred Stock in accordance with
the intent and principles of such provisions, then the Board of Directors shall
make an adjustment in the application of such provisions, in accordance with
such intent and principles, so as to protect such conversion rights as
aforesaid, but in no event shall any such adjustment have the effect of
increasing the applicable Conversion Factor as otherwise determined pursuant to
this Section B(5)(d).
(e) Stock Transfer Taxes. The issuance of stock certificates upon the
--------------------
conversion of the Preferred Stock shall be made without charge to the converting
holder for any tax in respect of such issuance. The Corporation shall not,
however, be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of shares in any name other than
that of the holder of such shares of Preferred Stock converted, and the
Corporation shall not be required to issue or deliver any such stock certificate
unless and until the person or persons requesting the issuance thereof shall
have paid to the Corporation the amount of such tax or shall have established to
the satisfaction of the Corporation that such tax has been paid.
(f) Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of the Conversion Factor, the Corporation, at its
expense, promptly shall compute such adjustment or readjustment in accordance
with the terms hereof and prepare and furnish to each holder of Preferred Stock
a certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of any holder of
Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments, (ii) the
Conversion Factor at the time in effect for the Preferred Stock, and (iii) the
number of shares of Common Stock and the amount, if any, of other property which
at the time would be received upon the conversion of such Preferred Stock owned
by such holder.
(g) Notices of Record Date. In the event of any fixing by the
----------------------
Corporation of a record date for the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any shares of
Common Stock or other securities, or any right to subscribe for, purchase or
otherwise acquire, or any option for the purchase of, any shares of stock of any
class or any other securities or property, or to receive any other right, the
Corporation shall mail to each holder of Preferred Stock at least 30 days prior
to the date specified therein, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend, distribution or right,
and the amount and character of such dividend, distribution or right.
(h) Notices. Any notice required by the provisions of this Section
-------
B(5) to be given to the holders of shares of Preferred Stock shall be deemed
given if deposited in the United States mail, first class postage prepaid, and
addressed to each holder of record at such holder's address appearing on the
books of the Corporation.
(6) Mandatory Conversion.
--------------------
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<PAGE>
(a) The Corporation shall cause the conversion ("Mandatory
Conversion") of all of the shares of Preferred Stock into fully paid and
nonassessable shares of Common Stock, at the conversion rate then in effect,
upon the occurrence of the Corporation's underwritten public offering of its
Common Stock pursuant to a registration statement (other than a registration
statement relating to an offer and sale of securities to employees of, or other
persons providing services to, the Corporation pursuant to an employee or
similar benefit plan, registered on Form S-8 or a comparable or successor form)
filed under the Securities Act of 1933, as amended, which yields to the
Corporation not less than $15,000,000 before deducting any underwriters' or
brokers' discounts, fees or commissions (a "Qualifying Public Offering").
(b) The Mandatory Conversion shall occur upon the closing of
a Qualifying Public Offering.
(c) Upon Mandatory Conversion, all rights of the holders of
shares of the Preferred Stock as such holders shall cease except their right to
receive payment of any dividends declared and unpaid to such time; such shares
shall no longer be deemed to be outstanding; and the holders thereof shall on
and after such date be conclusively deemed for all purposes to be holders of the
shares of Common Stock into which their shares of Preferred Stock were
converted.
(d) The Corporation shall promptly give all holders of
record of shares of Preferred Stock written notice of the date that a Qualifying
Public Offering will occur or is anticipated to occur. Such notice shall also
specify the place designated for exchanging the shares of Preferred Stock for
shares of Common Stock. Such notice shall be sent by first class mail, postage
prepaid, to each holder of record of shares of Preferred Stock at such holder's
address as shown in the records of the Corporation. Each holder of shares of
Preferred Stock shall surrender its certifi cate or certificates for all such
shares to the Corporation or the transfer agent at the place designated in such
notice and shall, upon surrender, receive certificates for the number of shares
of Common Stock to which such holder is entitled.
(e) For the purpose of calculating the conversion ratio of
Preferred Stock into Common Stock in the event of a Mandatory Conversion, such
calculation shall be made in accordance with Section B(5) of this Article.
NINTH: No stockholder will be permitted to cumulate votes at any
election of directors.
TENTH: Effective upon the closing of a Qualifying Public Offering, no
action that is required or permitted to be taken by the stockholders of the
corporation at any annual or special meeting of stockholders may be effected by
written consent of stockholders in lieu of a meeting of stockholders.
ELEVENTH: Meetings of stockholders may be held within or without the State
of Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision
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<PAGE>
contained in the laws of the State of Delaware) outside of the State of Delaware
at such place or places as may be designated from time to time by the Board of
Directors or in the Bylaws of the Corporation.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Restated Certificate
of Incorporation on behalf of the Corporation and have attested such execution
and do verify and affirm, under penalty of perjury, that this Restated
Certificate of Incorporation is the act and deed of the Corporation and that the
facts stated herein are true as of this __th day of May, 1998.
GENVEC, INC.
By:____________________________
Paul H. Fischer
President
Attest:
By:__________________________
Thomas E. Smart
Secretary
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<PAGE>
EXHIBIT 3.3
-----------
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
GENVEC, INC.
The undersigned, Paul H. Fischer, President of GenVec, Inc., a corporation
organized and existing under the laws of the State of Delaware (the
"Corporation"), does hereby certify as follows:
1. The present name of the Corporation is GenVec, Inc.
2. The original Certificate of Incorporation of the Corporation was
filed in the Office of the Secretary of State of the State of Delaware on
December 7, 1992.
3. This Amended and Restated Certificate of Incorporation was duly
adopted in accordance with the provisions of Sections 242 and 245 of the
Delaware General Corporation Law by the Board of Directors of the Corporation.
4. This Amended and Restated Certificate of Incorporation was approved by
written consent of the stockholders pursuant to Section 228 of the Delaware
General Corporation Law.
5. The Certificate of Incorporation of the Corporation is hereby amended
and restated in its entirety as follows:
<PAGE>
FIRST: The name of the Corporation is: GENVEC, INC.
SECOND: The address of its registered office in the State of Delaware is:
Corporation Trust Center, 1209 Orange Street, Wilmington, New
Castle County, Delaware 19801. The name of its registered agent
at such address is: THE CORPORATION TRUST COMPANY.
THIRD: The nature of the business or purposes to be conducted or
promoted is:
To have unlimited power to engage in any lawful act or activity
for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH: The Corporation is authorized to issue two classes of stock to be
designated respectively Common Stock and Preferred Stock. The
total number of shares of all classes of stock which the
Corporation has authority to issue is 55,000,000, consisting of
50,000,000 shares of Common Stock, $0.001 par value (the "Common
Stock"), and 5,000,000 shares of Preferred Stock, $0.001 par
value (the "Preferred Stock").
The Preferred Stock may be issued from time to time in one or
more series. The Board of Directors is hereby authorized subject
to limitations prescribed by law, to fix by resolution or
resolutions the designations, powers, preferences and rights, and
the qualifications, limitations or restrictions thereof, of each
such series of Preferred Stock, including without limitation
authority to fix by resolution or resolutions, the dividend
rights, dividend rate, conversion rights, voting rights, rights
and terms of redemption (including sinking fund provisions),
redemption price or prices, and liquidation preferences of any
wholly unissued series of Preferred Stock, and the number of
shares constituting any such series and the designation thereof,
or any of the foregoing.
The Board of Directors is further authorized to increase (but not
above the total number of authorized shares of the class) or
decrease (but not below the number of shares of any such series
then outstanding) the number of shares of any series, the number
of which was fixed by it, subsequent to the issue of shares of
such series then outstanding, subject to the powers, preferences
and rights, and the qualifications, limitations and restrictions
thereof stated in the resolution of the Board of Directors
originally fixing the number of shares of such series. If the
number of shares of any series is so decreased, then the shares
constituting such decrease shall resume the status which they had
prior to the adoption of the resolution originally fixing the
number of shares of such series.
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<PAGE>
FIFTH: In furtherance and not in limitation of the powers conferred
by statute, the Board of Directors of the Corporation is
expressly authorized to make, alter or repeal the Bylaws of
the Corporation.
SIXTH: Elections of directors need not be by written ballot unless
the Bylaws of the Corporation shall so provide.
SEVENTH: The Corporation is to have perpetual existence.
EIGHTH: The number of directors which constitute the whole Board of
Directors of the Corporation shall be designated in the
Bylaws of the Corporation.
NINTH: To the fullest extent permitted by the Delaware General
Corporation Law as the same exists or may hereafter be
amended, no director of the Corporation shall be personally
liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director.
Neither any amendment nor repeal of this Article, nor the
adoption of any provision of this Certificate of
Incorporation inconsistent with this Article, shall
eliminate or reduce the effect of this Article in respect of
any matter occurring, or any cause of action, suit or claim
that, but for this Article, would accrue or arise, prior to
such amendment, repeal or adoption of an inconsistent
provision.
TENTH: No stockholder will be permitted to cumulate votes at any
election of directors.
ELEVENTH: No action that is required or permitted to be taken by the
stockholders of the corporation at any annual or special
meeting of stockholders may be effected by written consent
of stockholders in lieu of a meeting of stockholders.
TWELFTH: Meetings of stockholders may be held within or without the
State of Delaware, as the Bylaws may provide. The books of
the Corporation may be kept (subject to any provision
contained in the laws of the State of Delaware) outside of
the State of Delaware at such place or places as may be
designated from time to time by the Board of Directors or in
the Bylaws of the Corporation.
THIRTEENTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or
between the Corporation and its stockholders or any class of
them, any court of equitable jurisdiction within the State
of Delaware may, on the application in a summary way of the
Corporation or of any creditor or stockholder thereof or on
the application of
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<PAGE>
any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on
the application of trustees in dissolution or of any receiver or
receivers appointed for the Corporation under the provisions of
Section 279 of Title 8 of the Delaware Code order a meeting of
the creditors or class of creditors, and/or of the stockholders
or class of stockholders of the Corporation, as the case may be,
to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or
class of stockholders of the Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization
of the Corporation as consequence of such compromise or
arrangement, such compromise or arrangement and such
reorganization shall, if sanctioned by the court to which such
application has been made, be binding on all the creditors or
class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on
the Corporation.
FOURTEENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of
Incorporation, in the manner now or hereafter prescribed by the
laws of the State of Delaware, and all rights conferred herein
are granted subject to this reservation.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Amended and Restated
Certificate of Incorporation on behalf of the Corporation and have attested such
execution and do verify and affirm, under penalty of perjury, that this Amended
and Restated Certificate of Incorporation is the act and deed of the Corporation
and that the facts stated herein are true as of this ____ day of June, 1998.
GENVEC, INC.
By:________________________________________
Paul H. Fischer
President
ATTEST:
By:_____________________________
Thomas E. Smart
Secretary
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<PAGE>
EXHIBIT 3.5
-----------
AMENDED AND RESTATED
BYLAWS OF
GENVEC, INC.
(Amended and Restated as of the closing of the Corporation's initial public
offering)
ARTICLE I
OFFICES
-------
Section 1.1. Registered Office and Registered Agent. The Corporation
--------------------------------------
shall maintain a registered office and registered agent within the State of
Delaware, which may be changed by the Board of Directors from time to time.
Section 1.2. Other Offices. The Corporation may also have offices at
-------------
such other places, within or without the State of Delaware, as the Board of
Directors may from time to time determine.
ARTICLE II
STOCKHOLDERS' MEETINGS
----------------------
Section 2.1. Place of Stockholders' Meetings. Meetings of stockholders
-------------------------------
may be held at such place, either within or without the State of Delaware, as
may be designated by the Board of Directors from time to time. If no such place
is designated by the Board of Directors, meetings of the stockholders shall be
held at the registered office of the Corporation in the State of Delaware.
Section 2.2. Annual Meeting. A meeting of the stockholders of the
--------------
Corporation shall be held in each calendar year, commencing with the year 1993,
at such time as the Board of Directors may determine. In the absence of such
designation, the annual meeting of stockholders shall be held on the third
Wednesday of May in each fiscal year at such time as the Board shall determine.
However, if such day falls on a legal holiday, then the meeting shall be held at
the same time and place on the next succeeding full business day.
Section 2.3. Special Meetings. Except as otherwise specifically provided
----------------
by law, special meetings of the stockholders may be called at any time:
(a) By the Board of Directors; or
<PAGE>
(b) By the President of the Corporation; or
(c) By the holders of record of not less than a majority of all
the shares outstanding and entitled to vote.
Upon the written request of any person entitled to call a special meeting
and who is entitled to do so under these Bylaws or applicable law, which request
shall set forth the purpose for which the meeting is desired, it shall be the
duty of the Secretary to give prompt written notice to the stockholders entitled
to vote of such meeting to be held at such time as the person requesting the
meeting or Secretary may fix, subject to the provisions of Section 2.4 hereof.
If the Secretary shall fail to fix such date and give notice within 20 days
after receipt of such request, the person or persons calling the meeting may do
so. Nothing contained in this paragraph of this Section 2.3 shall be construed
as limiting, fixing or affecting the time when a meeting of stockholders called
by action of the Board of Directors may be held.
Section 2.4. Notice of Meetings and Adjourned Meetings. Written notice
-----------------------------------------
stating the place, date and hour of any meeting and, (i) in the case of special
meetings, the purpose or purposes for which the meeting is called, or (ii) in
the case of the annual meeting, those matters which the Board of Directors, at
the time of giving the notice, intends to present for action by the
stockholders, shall be given not less than 10 nor more than 60 days before the
date of the meeting to each stockholder entitled to vote at such meeting. Such
notice may be given by or at the direction of the person or persons authorized
to call the meeting. The notice of any meeting at which directors are to be
elected shall include the name of any nominee or nominees who, at the time of
the notice the board intends to present for election.
Written notice of any meeting of stockholders shall be given either
personally or by first-class mail or by telegraphic or other written
communication. Notices not personally delivered shall be sent postage prepaid
and shall be addressed to the stockholder at the address of that stockholder
appearing on the books of the Corporation or given by the stockholder to the
Corporation for the purpose of notice. Notice shall be deemed to have been given
at such time as it is delivered personally or deposited in the mail or sent by
telegram or other means of written communication.
An affidavit of the mailing or other means of giving any notice of any
stockholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the Corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
When a meeting, either annual or special, is adjourned to another time or
place, notice need not be given of the adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At any
adjourned meeting the Corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty (30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
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<PAGE>
Section 2.5. Advance Notice of Stockholder Nominees and Stockholder
------------------------------------------------------
Business. To be properly brought before an annual meeting or special meeting,
- --------
nominations for the election of directors or other business must be (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors, (b) otherwise properly brought before
the meeting by or at the direction of the Board of Directors or (c) otherwise
properly brought before the meeting by a stockholder.
Section 2.6. Quorum of and Action by Shareholders.
------------------------------------
(a) Unless otherwise provided in the Certificate of
Incorporation of the Corporation (the "Certificate") or in a Bylaw adopted by
stockholders, the presence, in person or by proxy, of stockholders entitled to
cast at least a majority of the votes that all stockholders are entitled to cast
on a particular matter to be acted upon at the meeting shall constitute a
quorum. The stockholders present at a duly called or held meeting at which a
quorum is present may continue to do business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum, if any action
taken (other than adjournment) is approved by at least a majority of the shares
required to constitute a quorum. If a meeting cannot be organized because of the
absence of a quorum, those present may, except as otherwise provided by law,
adjourn the meeting to such time and place as they may determine.
(b) Whenever any corporate action is to be taken by vote of the
stockholders of the Corporation at a duly organized meeting, unless otherwise
provided in the Certificate or the Delaware Code, such corporate action shall be
authorized by a majority of the votes cast at the meeting by the holders of
shares entitled to vote thereon.
(c) The stockholders present at a duly organized meeting can
continue to do business until adjournment, notwithstanding the withdrawal of
enough stockholders to leave less than a quorum.
(d) The stockholders entitled to vote at any meeting of
stockholders shall be determined in accordance with the provisions of Section
2.9 of these Bylaws, subject to the provisions of 217 and 218 of the General
Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors
and joint owners, and to voting trusts and other voting arrangements).
Except as otherwise provided in the certificate of incorporation or Bylaws,
each stockholder shall be entitled to one vote for each share of capital stock
held by such stockholder.
Section 2.7. Voting List; Proxies. The officer who has charge of the
--------------------
stock ledger of the Corporation shall prepare, at least ten (10) days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten (10) days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
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<PAGE>
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place
of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
Each stockholder entitled to vote for directors, or on any other matter,
shall have the right to do so in person, or may authorize another person or
persons to act for him or her by proxy. All proxies shall be executed in
writing and signed by the stockholder, and shall be filed with the Secretary of
the Corporation. No proxy shall be voted or acted upon after three (3) years
from its date, unless the proxy provides for a longer period. A proxy shall be
deemed signed if the stockholder's name is placed on the proxy (whether by
manual signature, typewriting, telegraphic transmission, telefacsimile or
otherwise) by the stockholder or the stockholder's attorney-in-fact. The
revocability of a proxy that states on its face that it is irrevocable shall be
governed by the provisions of Section 212(e) of the General Corporation Law of
Delaware (relating to the irrevocability of proxies).
Section 2.8. Organization. The President, or in the absence of the
------------
President, the Chairman of the Board, or in the absence of the Chairman, any
executive officer of the Corporation, shall call the meeting of the stockholders
to order, and shall act as chairman of the meeting. In the absence of the
President, the Chairman of the Board, and all of the executive officers, the
stockholders shall appoint a chairman for such meeting. The chairman of any
meeting of stockholders shall determine the order of business and the procedures
at the meeting, including such matters as the regulation of the manner of voting
and the conduct of business. The secretary of the Corporation shall act as
secretary of all meetings of the stockholders, but in the absence of the
secretary at any meeting of the stockholders, the chairman of the meeting may
appoint any person to act as secretary of the meeting.
Section 2.9. Record Date for Stockholder Notice; Voting. For purposes of
------------------------------------------
determining the stockholders entitled to notice of any meeting or to vote
thereat, the Board of Directors may fix, in advance, a record date, which shall
not be more than sixty (60) days nor less than ten (10) days before the date of
any such meeting and in such event only stockholders of record on the date so
fixed are entitled to notice and to vote, notwithstanding any transfer of any
shares on the books of the Corporation after the record date.
If the Board of Directors does not so fix a record date, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the business day next
preceding the day on which notice is given or, if notice is waived, at the close
of business on the business day next preceding the day on which the meeting is
held.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting
unless the Board of Directors fixes a new record date for the adjourned meeting,
but the Board of Directors shall fix a new record date if the meeting is
adjourned for more than thirty (30) days from the date set for the original
meeting.
The record date for determining stockholders for any other purpose shall be
at the close of business on the day on which the Board of Directors adopts the
resolution relating thereto.
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<PAGE>
Section 2.1. No Stockholder Action by Written Consent Without a Meeting.
----------------------------------------------------------
No action which may be taken at any annual or special meeting of stockholders
may be taken without a meeting and without prior notice, in a consent in
writing.
ARTICLE III
BOARD OF DIRECTORS
------------------
Section 3.1. Number. The business and affairs of the Corporation shall
------
be managed by or under the direction of a Board of Directors which shall be
composed of six (6) members. The number of directors may be changed by an
amendment to this bylaw, duly adopted by the Board of Directors or by the
stockholders, or by a duly adopted amendment to the certificate of
incorporation.
Section 3.2. Place of Meeting. Meetings of the Board of Directors may be
----------------
held at such place either within or without the State of Delaware, as a majority
of the Directors may from time to time designate or as may be designated in the
notice calling the meeting.
Section 3.3. Regular Meetings. A regular meeting of the Board of
----------------
Directors shall be held annually, immediately following the annual meeting of
stockholders, at the place where such meeting of the stockholders is held or at
such other place, date and hour as a majority of the newly elected Directors may
designate. Regular meetings of the Board of Directors may be held without
notice if the times of such meetings are fixed by the Board of Directors. If any
regular meeting day shall fall on a legal holiday, then the meeting shall be
held at the same time and place on the next succeeding full business day.
Section 3.4. Special Meetings. Special meetings of the Board of
----------------
Directors, for any purpose or purposes, may be held at any time if ordered by
the President, by the Chairman of the Board, by the secretary or by any two
Directors.
Section 3.5. Notices of Meetings of Board of Directors.
-----------------------------------------
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the Corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or telegram, it shall be delivered personally or by telephone or to
the telegraph company at least twenty-four (24) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
Corporation.
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<PAGE>
Section 3.6. Quorum. A majority of the total number of Directors shall
------
constitute a quorum for the transaction of business, except to adjourn as
provided in Section 3.8 of these Bylaws, and the vote of a majority of the
Directors present at a meeting at which a quorum is present shall be regarded as
an act of the Board of Directors, subject to the provisions of the certificate
of incorporation and applicable law. A meeting at which a quorum is initially
present may continue to transact business notwithstanding the withdrawal of
directors, if any action taken is approved by at least a majority of the
required quorum for that meeting.
Section 3.7. Waiver of Notice. Notice of a meeting need not be given to
----------------
any director (i) who signs a waiver of notice or a consent to holding the
meeting or an approval of the minutes thereof, whether before or after the
meeting, or (ii) who attends the meeting other than for the express purpose of
objecting at the beginning of the meeting of the transaction of any business
because the meeting is not lawfully called or convened. All such waivers,
consents, and approvals shall be filed with the corporate records or made part
of the minutes of the meeting. A waiver of notice need not specify the purpose
of any regular or special meeting of the Board of Directors.
Section 3.8. Adjournment. A majority of the directors present, whether
-----------
or not constituting a quorum, may adjourn any meeting to another time and place.
Section 3.9. Notice of Adjournment. Notice of the time and place of
----------------------
holding an adjourned meeting need not be given unless the meeting is adjourned
for more than twenty-four (24) hours. If the meeting is adjourned for more than
twenty-four (24) hours, then notice of the time and place of the adjourned
meeting shall be given before the adjourned meeting takes place, in the manner
specified in Section 3.8 of these bylaws, to the directors who were not present
at the time of the adjournment.
Section 3.10. Informal Action by the Board of Directors. Any action
-----------------------------------------
required or permitted to be taken at any meeting of the Board of Directors, or
of any committee thereof, may be taken without a meeting if all members of the
Board or committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board or
committee. Such action by written consent shall have the same force and effect
as a unanimous vote of the Board of Directors or Committee, as the case may be.
Section 3.11. Powers.
------
(a) General Powers. The Board of Directors shall have all powers
--------------
necessary or appropriate to the management of the business and affairs of the
Corporation and, in addition to the power and authority conferred by these
Bylaws, may exercise all powers of the Corporation and do all such lawful acts
and things as are not by statute, these Bylaws or the Certificate directed or
required to be exercised or done by the stockholders.
(b) Specific Powers. Without limiting the general powers
---------------
conferred by subparagraph (a) above and the powers conferred by the Certificate
of Incorporation and Bylaws of
-6-
<PAGE>
the Corporation, it is hereby expressly declared that the Board of Directors
shall have the following powers:
(i) To confer upon any officer or officers of the
Corporation the power to choose, remove or suspend assistant officers, agents or
servants.
(ii) To appoint any person, firm or corporation to accept
and hold in trust for the Corporation any property belonging to the Corporation
or in which it is interested, and to authorize any such person, firm or
corporation to execute any documents and perform any duties that may be
requisite in relation to any such trust.
(iii) To appoint a person or persons to vote shares of
another corporation held and owned by the Corporation.
(iv) By resolution adopted by a majority of the full Board
of Directors, to designate one or more of its members to constitute an executive
committee which, to the extent provided in such resolution and subject to the
Delaware code, shall have and may exercise the power of the Board of Directors
in the management of the business and affairs of the Corporation and may
authorize the seal of the Corporation to be affixed.
(v) To fix the place, time and purpose of meetings of
stockholders.
(vi) To purchase or otherwise acquire for the Corporation
any property, rights or privileges which the Corporation is authorized to
acquire, at such prices, on such terms and conditions and for such consideration
as it shall from time to time see fit, and, at its discretion, to pay any
property or rights acquired by the Corporation, either wholly or partly in money
or in stocks, bonds, debentures or other securities of the Corporation.
(vii) To create, make and issue mortgages, bonds, deeds of
trust, trust agreements and negotiable or transferable instruments and
securities, secured by mortgage or otherwise, and to do every other act and
thing necessary to effectuate the same.
(viii) To appoint and remove or suspend such subordinate
officers, agents or servants, permanently or temporarily, as it may from time to
time think fit, and to determine their duties, and fix, and from time to time
change, their salaries or emoluments, and to require security in such instances
and in such amounts as it thinks fit.
(ix) To determine who shall be authorized on the
Corporation's behalf to sign bills, notes, receipts, acceptances, endorsements,
checks, releases, contracts and documents.
Section 3.12. Compensation of Directors. Compensation of Directors and
-------------------------
reimbursement of their expenses incurred in connection with the business of the
Corporation, if any, shall be as determined from time to time by resolution of
the Board of Directors. This Section 3.12 shall not be
-7-
<PAGE>
construed to preclude any director from serving the Corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
Section 3.13. Removal of Directors by Stockholders. Unless otherwise
------------------------------------
restricted by statute, by the certificate of incorporation or by these bylaws,
any director or the entire Board of Directors may be removed, with or without
cause, by the holders of a majority of the shares then entitled to vote at an
election of directors.
Section 3.14. Resignations. Any Director may resign at any time by
------------
submitting his written resignation to the Corporation. Such resignation shall
take effect at the time of its receipt by the Corporation unless another time be
fixed in the resignation, in which case it shall become effective at the time so
fixed. The acceptance of a resignation shall not be required to make it
effective.
Section 3.15. Vacancies. Except as otherwise set forth in the Certificate,
---------
any vacancies on the Board of Directors, including vacancies resulting from a
removal of Directors under Section 3.10 and newly created directorships
resulting from any increase in the authorized number of Directors, may be filled
by a majority vote of the remaining Directors then in office, although less than
a quorum, or by a sole remaining Director, and each person so elected shall be a
Director until his successor is elected and qualified or until his earlier
resignation or removal.
If at any time, by reason of death or resignation or other cause, the
Corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the certificate of incorporation or these bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
Section 3.16. Participation by Telephone Conference. Directors may
-------------------------------------
participate in regular or special meetings of the Board by telephone or similar
communications equipment by means of which all other persons participating in
the meeting can hear each other, and such participation shall constitute
presence at the meeting.
Section 3.17. Nomination of Directors; Stockholder Business at Annual
-------------------------------------------------------
Meetings. Subject to the rights of holders of any class or series of stock
- --------
having a preference over the Common Stock as to dividends or upon liquidation,
nominations for the election of directors may be made by the Board of Directors
or any nominating committee appointed by the Board of Directors or by any
stockholder entitled to vote in the election of directors generally. However, a
stockholder generally entitled to vote in the election of directors may nominate
one or more persons for election as directors at a meeting only if written
notice of such stockholder's intent to make such nomination or nominations has
been given, either by personal delivery or by United States mail, postage
prepaid, to the secretary of the Corporation not later than (i) with respect to
an election to be held at an annual meeting of stockholders, 90 days in advance
of such meeting and (ii) with respect to an election to be held at a special
meeting of stockholders for the election of directors, the close of business on
the seventh day
-8-
<PAGE>
following the date on which notice of such meeting is first given to
stockholders. Each such notice shall set forth the following information: (a)
the name and address of the stockholder who intends to make the nomination and
of the person or persons to be nominated; (b) a representation that the
stockholder is a holder of record of stock of the corporate on entitled to vote
at such meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (c) a description of all
arrangements or understandings between the stockholder, each nominee or any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder; (d) such other
information regarding each nominee proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the Securities and Exchange Commission, had the nominee been nominated, or
intended to be nominated, by the Board of Directors of the Corporation; and (e)
the consent of each nominee to serve as a director of the Corporation if so
elected. At the request of the Board of Directors any person nominated by the
Board of Directors for election as a director shall furnish to the secretary of
the Corporation that information required to be set forth in a stockholder's
notice of nomination which pertains to the nominee. No person shall be eligible
for election as a director of the Corporation unless nominated in accordance
with the procedures set forth herein. A majority of the Board of Directors may
reject any nomination by a stockholder not timely made or otherwise not in
accordance with the terms of this Section 3.17. If a majority of the Board of
Directors reasonably determines that the information provided in a stockholder's
notice does not satisfy the informational requirements of this Section 3.17 in
any material respect, the secretary of the Corporation shall promptly notify
such stockholder of the deficiency in writing. The stockholder shall have an
opportunity to cure the deficiency by providing additional information to the
secretary within such period of time, not to exceed ten (10) days from the date
such deficiency notice is given to the stockholder, as a majority of the Board
of Directors shall reasonably determine. If the deficiency is not cured within
such period, or if a majority of the Board of Directors reasonably determines
that the additional information provided by the stockholder, together with the
information previously provided, does not satisfy the requirements of this
Section 3.17 in any material respect, then a majority of the Board of Directors
may reject such stockholder's nomination. The secretary of the Corporation shall
notify a stockholder in writing whether the stockholder's nomination has been
made in accordance with the time and information requirements of this Section
3.17.
At an annual meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting (i) by or at the
direction of the chairman of the meeting or (ii) by any stockholder of the
Corporation who complies with the notice procedures set forth in this Section
3.17. For business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the secretary of the Corporation. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than 90 days prior to the meeting; provided, however, that
in the event that less than 70 days notice or prior public disclosure of the
date of the meeting is given or made to stockholders, notice by the stockholder
to be timely must be received not later than the close of business on the tenth
day following the earlier of the day on which such notice of the date of the
annual meeting was mailed or such public disclosure was made. A stockholder's
notice to the secretary shall set forth as to each matter the stockholder
proposes to bring before the annual meeting the following information: (a) a
brief description of the business desired to be brought
-9-
<PAGE>
before the annual meeting and the reasons for conducting such business at the
annual meeting, (b) the name and address, as they appear on the corporation's
books, of the stockholder proposing such business, (c) the class and number of
shares of the Corporation which are beneficially owned by the stockholder and
(d) any material direct or indirect interest, financial or otherwise of the
stockholder or its affiliates or associates in such business. The Board of
Directors may reject any stockholder proposal not timely made in accordance with
this Section 3.17. If the Board of Directors determines that the information
provided in a stockholder's notice does not satisfy the informational
requirements hereof, the secretary of the corporation shall promptly notify such
stockholder of the deficiency in the notice. The stockholder shall then have an
opportunity to cure the deficiency by providing additional information to the
secretary within such period of time, not to exceed ten days from the date such
deficiency notice is given to the stockholder, as the Board of Directors shall
determine. If the deficiency is not cured within such period, or if the Board of
Directors determines that the additional information provided by the
stockholder, together with the information previously provided, does not satisfy
the requirements of this Section 3.17, then the Board of Directors may reject
such stockholder's proposal. The secretary of the Corporation shall notify a
stockholder in writing whether the stockholder's proposal has been made in
accordance with the time and information requirements hereof.
This provision shall not prevent the consideration and approval or
disapproval at an annual meeting of reports of officers, directors and
committees of the Board of Directors, but in connection therewith no new
business shall be acted upon at any such meeting unless stated, filed and
received as herein provided. Notwithstanding anything in these bylaws to the
contrary, no business shall be conducted at an annual meeting except in
accordance with procedures set forth in this Section 3.17.
ARTICLE IV
COMMITTEES
----------
Section 4.1. Committees of Directors. The Board of Directors may, by
-----------------------
resolution adopted by a majority of the authorized number of directors,
designate one (1) or more committees, each consisting of one (1) or more
directors, to serve at the pleasure of the board. The board may designate one
(1) or more directors as alternate members of any committee, who may replace any
absent member at any meeting of the committee. The appointment of members or
alternate members of a committee requires the vote of a majority of the
authorized number of directors. Any committee, to the extent provided in the
resolution of the board, shall have all the authority of the board, but no such
committee shall have the power and authority to (i) amend the certificate of
incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the Board of Directors as provided in Section 151(a) of the General
Corporation Law of Delaware, fix the designations and any of the preferences or
rights of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the Corporation or the conversion into, or the
exchange of such shares for, shares of any other class or classes or any other
series of the same or any other class or classes of stock of the Corporation),
(ii) adopt an agreement of merger or consolidation under Sections 251 or 252 of
the General Corporation Law of Delaware (relating to mergers and consolidations
of domestic and
-10-
<PAGE>
foreign corporations), (iii) recommend to the stockholders the sale, lease or
exchange of all or substantially all of the corporation's property and assets,
(iv) recommend to the stockholders a dissolution of the Corporation or a
revocation of a dissolution or (v) amend the bylaws of the Corporation; and,
unless the board resolution establishing the committee, the bylaws or the
certificate of incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend, to authorize the issuance of
stock, or to adopt a certificate of ownership and merger pursuant to Section 253
of the General Corporation Law of Delaware (relating to mergers of parent and
subsidiary corporations).
Section 4.2. Meetings and Action of Committees. Meetings and actions of
---------------------------------
committees shall be governed by, and held and taken in accordance with, the
provisions of Article III of these bylaws: Section 3.6 (place of meetings;
meetings by telephone), Section 3.7 (regular meetings), Section 3.8 (special
meetings; notice), Section 3.9 (quorum), Section 3.10 (waiver of notice),
Section 3.11 (adjournment), Section 3.12 (notice of adjournment) and Section
3.13 (board action by written consent without meeting), with such changes in the
context of those bylaws as are necessary to substitute the committee and its
members for the Board of Directors and its members; provided, however, that the
time of regular meetings of committees may be determined either by resolution of
the Board of Directors or by resolution of the committee, that special meetings
of committees may also be called by resolution of the Board of Directors, and
that notice of special meetings of committees shall also be given to all
alternate members, who shall have the right to attend all meetings of the
committee. The Board of Directors may adopt rules for the government of any
committee not inconsistent with the provisions of these bylaws.
Section 4.3. Committee Minutes. Each committee shall keep regular minutes
-----------------
of its meetings and report the same to the Board of Directors when required.
ARTICLE V
OFFICERS
--------
Section 5.1. Election and Office. The Corporation shall have a President,
-------------------
a Secretary and a Chief Financial Officer or Treasurer who shall be elected by
the Board of Directors. The Corporation may also have, at the discretion of
the Board of Directors, a Chairman of the Board, one or more Vice Presidents
(however denominated), one or more assistant secretaries, and such other
officers as may be appointed in accordance with the provisions of Section 5.3
of these bylaws. Any number of offices may be held by the same person.
Section 5.2. Election of Officers. The corporate officers of the
--------------------
Corporation, except such officers as may be appointed in accordance with the
provisions of Section 5.3 or Section 5.5 of these bylaws, shall be chosen by the
board, subject to the rights, if any, of an officer under any contract of
employment, and shall hold their respective offices for such terms as the Board
of Directors may from time to time determine.
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<PAGE>
Section 5.3. Subordinate Officers. The Board of Directors may appoint, or
--------------------
may empower the President to appoint, such other officers as the business of the
Corporation may require, each of whom shall hold office for such period, have
such authority, and perform such duties as are provided in these bylaws or as
the Board of Directors may from time to time determine, and, in the case of an
officer chosen by the President, by the President.
Section 5.4. Removal and Resignation of Officers. Subject to the rights,
-----------------------------------
if any, of an officer under any contract of employment, any officer may be
removed, either with or without cause, by the Board of Directors at any regular
or special meeting of the board or, except in case of an officer chosen by the
Board of Directors, by any officer upon whom such power of removal may be
conferred by the Board of Directors, and, in the case of an officer chosen by
the President, by the President.
Any officer may resign at any time by giving written notice to the
Corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the Corporation under any contract to which the officer is a
party.
Section 5.5. Powers and Duties of the President. Unless otherwise
----------------------------------
determined by the Board of Directors, the President shall have the usual duties
of an executive officer with general supervision over and direction of the
affairs of the Corporation. In the exercise of these duties and subject to the
limitations set forth in the Delaware Code, these Bylaws, and the actions of the
Board of Directors, the President may appoint, suspend and discharge employees,
agents and assistant officers, fix the compensation of all officers and
assistant officers, shall preside at all meetings of the stockholders at which
he or she shall be present, and shall, unless there is a Chairman of the Board
of Directors, preside at all meetings of the Board of Directors. The President
shall also do and perform such other duties as from time to time may be assigned
to him or her by the Board of Directors. Unless otherwise designated by the
Board of Directors, the President shall be the Chief Executive Officer of the
Corporation.
Section 5.6. Powers and Duties of the Secretary. Unless otherwise
----------------------------------
determined by the Board of Directors, the Secretary shall record all proceedings
of the meetings of the Corporation, the Board of Directors and all committees,
in books to be kept for that purpose, and shall attend to the giving and serving
of all notices for the Corporation. The Secretary shall have charge of the
corporate seal, the certificate books, transfer books and stock ledgers, and
such other books and papers as the Board of Directors may direct. The Secretary
shall perform all other duties ordinarily incident to the office of Secretary
and shall have such other powers and perform such other duties as may be
assigned to him or her by the Board of Directors.
Section 5.7. Powers and Duties of the Chief Financial Officer or
---------------------------------------------------
Treasurer. Unless otherwise determined by the Board of Directors, the Chief
- ---------
Financial Officer or Treasurer shall have charge of all the funds and securities
of the Corporation which may come into his or her hands. When necessary or
proper, unless otherwise ordered by the Board of Directors, the Chief Financial
-12-
<PAGE>
Officer or Treasurer shall endorse for collection on behalf of the Corporation
checks, notes and other obligations, and shall deposit the same to the credit of
the Corporation in such banks or depositories as the Board of Directors may
designate and shall sign all receipts and vouchers for payments made to the
Corporation. The Chief Financial Officer or Treasurer shall enter regularly, in
books of the Corporation to be kept by him or her for that purpose, a full and
accurate account of all moneys received and paid by him or her on account of the
Corporation. Whenever required by the Board of Directors, the Chief Financial
Officer or Treasurer shall render a statement of the financial condition of the
Corporation. The Chief Financial Officer or Treasurer shall at all reasonable
times exhibit the Corporation's books and accounts to any Director of the
Corporation, upon application at the office of the Corporation during business
hours. The Chief Financial Officer or Treasurer shall have such other powers and
shall perform such other duties as may be assigned to him or her from time to
time by the Board of Directors.
Section 5.8. Powers and Duties of the Chairman of the Board of Directors.
-----------------------------------------------------------
Unless otherwise determined by the Board of Directors, the Chairman of the Board
of Directors, if any, shall preside at all meetings of Directors. The Chairman
shall have such other powers and perform such further duties as may be assigned
to him or her by the Board of Directors.
Section 5.9. Powers and Duties of Vice Presidents and Assistant Officers.
-----------------------------------------------------------
Unless otherwise determined by the Board of Directors, each Vice President and
each assistant officer shall have the powers and perform the duties of his or
her respective superior officer. Vice Presidents and assistant officers shall
have such rank as shall be designated by the Board of Directors and each, in the
order of rank, shall act for such superior officer in his or her absence or
disability or when so directed by such superior officer or by the Board of
Directors. Vice Presidents may be designated as having responsibility for a
specific aspect of the Corporation's affairs, in which event each such Vice
President shall be superior to the other Vice Presidents in relation to matters
within his aspect. The President shall be the superior officer of the Vice
Presidents. The Chief Financial Officer or Treasurer and the Secretary shall be
the superior officers of the Assistant Chief Financial Officers and Assistant
Secretaries, respectively.
Section 5.10. Delegation of Office. The Board of Directors may delegate
--------------------
the powers or duties of any officer of the Corporation to any other officer from
time to time.
Section 5.11. Vacancies. The Board of Directors shall have the power to
---------
fill any vacancies in any office occurring from whatever reason.
ARTICLE VI
CAPITAL STOCK
-------------
Section 6.1. Stock Certificates. The shares of the Corporation shall be
------------------
represented by certificates, provided that the Board of Directors of the
Corporation may provide by resolution or resolutions that some or all of any or
all classes or series of its stock shall be uncertificated shares. Any such
resolution shall not apply to shares represented by a certificate until such
certificate is
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<PAGE>
surrendered to the Corporation. Notwithstanding the adoption of such a
resolution by the Board of Directors, every holder of stock represented by
certificates and, upon request, every holder of uncertificated shares, shall be
entitled to have a certificate signed by, or in the name of the Corporation by,
the Chairman or Vice-Chairman of the Board of Directors, or the President or
Vice-President, and by the Chief Financial Officer or Treasurer, or the
secretary or an assistant secretary of such corporation representing the number
of shares registered in certificate form. Any or all of the signatures on the
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
has ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he or she were such officer, transfer agent or registrar at the date of
issue.
Certificates for shares shall be of such form and device as the Board of
Directors may designate and shall state the name of the record holder of the
shares represented thereby; its number; date of issuance; the number of shares
for which it is issued; a summary statement or reference to the powers,
designations, preferences or other special rights of such stock and the
qualifications, limitations or restrictions of such preferences and/or rights,
if any; a statement or summary of liens, if any, a conspicuous notice of
restrictions upon transfer or registration of transfer, if any, a statement as
to any applicable voting trust agreement; and, if the shares be assessable, or,
if assessments are collectible by personal action, a plain statement of such
facts.
Upon surrender to the secretary or transfer agent of the Corporation of a
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
The Corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, or upon the books and records of the Corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the Corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
Section 6.2. Special Designation on Certificates. If the Corporation is
-----------------------------------
authorized to issue more than one class of stock or more than one series of any
class, then the powers, the designations, the preferences and the relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights shall be set forth in full or summarized on the face or back of
the certificate that the Corporation shall issue to represent such class or
series of stock; provided, however, that, except as otherwise provided in
Section 202 of the General Corporation Law of Delaware (relating to transfers of
stock, stock certificates and undercertificated stock), in lieu of the foregoing
requirements there may be set forth on the face or back of the certificate that
the Corporation shall issue to represent such class or series of stock a
statement that the Corporation will furnish without charge to each stockholder
who
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<PAGE>
so requests the powers, the designations, the preferences and the relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
Section 6.3. Transfer Agents And Registrars. The Board of Directors may
------------------------------
appoint one or more transfer agents or transfer clerks, and one or more
registrars, each of which shall be an incorporated bank or trust company, either
domestic or foreign, who shall be appointed at such times and places as the
requirements of the Corporation may necessitate and the Board of Directors may
designate.
Section 6.4. Lost, Stolen or Destroyed Share Certificates. The
--------------------------------------------
Corporation may issue a new certificate of stock in place of any certificate
therefore issued by it, alleged to have been lost, stolen or destroyed, and the
Corporation may require the owner of the lost, stolen, or destroyed certificate,
or his legal representative to give the Corporation a bond sufficient to
indemnify it against claim that may be made against it on account of the alleged
loss, theft or destruction of any such certificate or the issuance of such new
certificate or uncertificated shares.
ARTICLE VII
INDEMNIFICATION OF DIRECTORS
----------------------------
OFFICERS, EMPLOYEES, AND OTHER AGENTS
--------------------------------------
Section 7.1. Indemnification of Directors and Officers. The Corporation
-----------------------------------------
shall, to the maximum extent and in the manner permitted by the General
Corporation Law of Delaware as the same now exists or may hereafter be amended,
indemnify any person against expenses (including attorneys' fees), judgments,
fines, and amounts paid in settlement actually and reasonably incurred in
connection with any threatened, pending or completed action, suit, or proceeding
in which such person was or is a party or is threatened to be made a party by
reason of the fact that such person is or was a director or officer of the
Corporation. For purposes of this Section 6.1, a "director" or "officer" of the
Corporation shall mean any person (i) who is or was a director or officer of the
Corporation, (ii) who is or was serving at the request of the Corporation as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise, or (iii) who was a director or officer of a corporation which
was a predecessor corporation of the Corporation or of another enterprise at the
request of such predecessor corporation.
The Corporation shall be required to indemnify a director or officer in
connection with an action, suit, or proceeding (or part thereof) initiated by
such director or officer only if the initiation of such action, suit, or
proceeding (or part thereof) by the director or officer was authorized by the
Board of Directors of the Corporation.
Any repeal or modification of the foregoing provisions of this Article
shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
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<PAGE>
Section 7.2. Indemnification of Others. The Corporation shall have the
-------------------------
power, to the maximum extent and in the manner permitted by the General
Corporation Law of Delaware as the same now exists or may hereafter be amended,
to indemnify any person (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, and amounts paid in settlement
actually and reasonably incurred in connection with any threatened, pending or
completed action, suit, or proceeding, in which such person was or is a party or
is threatened to be made a party by reason of the fact that such person is or
was an employee or agent of the Corporation. For purposes of this Section 6.2,
an "employee" or "agent" of the Corporation (other than a director or officer)
shall mean any person (i) who is or was an employee or agent of the Corporation,
(ii) who is or was serving at the request of the Corporation as an employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, or (iii) who was an employee or agent of a corporation which was a
predecessor corporation of the Corporation or of another enterprise at the
request of such predecessor corporation.
Section 7.3. Payment of Expenses in Advance. The Corporation shall pay
------------------------------
the expenses (including attorney's fees) incurred by a director or officer of
the Corporation entitled to indemnification hereunder in defending any action,
suit or proceeding referred to in this Section 6.1 in advance of its final
disposition; provided, however, that payment of expenses incurred by a director
or officer of the Corporation in advance of the final disposition of such
action, suit or proceeding shall be made only upon receipt of an undertaking by
the director or officer to repay all amounts advanced if it should ultimately be
determined that the director or officer is not entitled to be indemnified under
this Section 6.1 or otherwise.
Section 7.4. Indemnity Not Exclusive. The rights conferred on any person
-----------------------
by this Article shall not be exclusive of any other rights which such person may
have or hereafter acquire under any statute, provision of the Corporation's
Certificate of Incorporation, these bylaws, agreement, vote of the stockholders
or disinterested directors or otherwise.
Section 7.5. Insurance Indemnification. The Corporation may purchase and
-------------------------
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him or her and incurred by him or her in any such capacity, or
arising out of his or her status as such, whether or not the Corporation would
have the power to indemnify him or her against such liability under the
provisions of the General Corporation Law of Delaware.
ARTICLE VII
FISCAL YEAR
-----------
The Board of Directors shall have the power by resolution to fix the fiscal
year of the Corporation. If the Board of Directors shall fail to do so, the
President shall fix the fiscal year.
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<PAGE>
ARTICLE IX
AMENDMENTS
----------
The original or other bylaws of the Corporation may be adopted, amended or
repealed by the stockholders entitled to vote; provided, however, that the
Corporation may, in its certificate of incorporation, confer the power to adopt,
amend or repeal bylaws upon the directors. The fact that such power has been so
conferred upon the directors shall not divest the stockholders of the power, nor
limit their power to adopt, amend or repeal bylaws.
ARTICLE X
INTERPRETATION OF BYLAWS
------------------------
All words, terms and provisions of these Bylaws shall be interpreted and
defined by and in accordance with the Delaware Code.
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<PAGE>
EXHIBIT 10.2
------------
GENVEC, INC.
AMENDED AND RESTATED
1993 STOCK INCENTIVE PLAN
-------------------------
(as amended and restated April 28, 1998)
1. Purpose. GENVEC, INC. (the "Company") hereby adopts the GenVec, Inc.
-------
1993 Stock Incentive Plan (the "Plan"). The Plan is intended to recognize the
contributions made to the Company by key employees (including employees who are
members of the Board of Directors), consultants and advisors of the Company or
any Affiliate (as defined below), to provide such persons with additional
incentive to devote themselves to the future success of the Company or an
Affiliate, and to improve the ability of the Company or an Affiliate to attract,
retain, and motivate individuals upon whom the Company's sustained growth and
financial success depend, by providing such persons with an opportunity to
acquire or increase their proprietary interest in the Company through receipt of
rights to acquire the Company's Common Stock, par value $.001 per Share (the
"Common Stock") and through receipt of Common Stock subject to conditions of
forfeiture. In addition, the Plan is intended as an additional incentive to
certain directors of the Company who are not employees of the Company or an
Affiliate to serve on the Board of Directors and to devote themselves to the
future success of the Company by providing them with an opportunity to acquire
or increase their proprietary interest in the Company through the receipt of
Options to acquire Common Stock and through receipt of Common Stock subject to
conditions of forfeiture.
2. Definitions. Unless the context clearly indicates otherwise, the
-----------
following terms shall have the following meanings:
(a) "Affiliate" means a corporation which is a parent corporation or a
subsidiary corporation with respect to the Company within the meaning of Section
424(e) or (f) of the Code.
(b) "Award" shall mean a grant of Common Stock subject to conditions
of forfeiture made pursuant to the terms of the Plan.
(c) "Award Agreement" shall mean the agreement between the Company and
a Grantee with respect to an Award made pursuant to the Plan.
(d) "Awardee" shall mean a person to whom an Award has been granted
pursuant to the Plan.
(e) "Board of Directors" means the Board of Directors of the Company.
(f) "Change of Control" shall have the meaning an set forth in Section
10 of the Plan.
<PAGE>
(g) "Code" means the Internal Revenue Code of 1986, as amended.
(h) "Committee" shall have the meaning set forth in Section 3 of the
Plan.
(i) "Company" means GenVec, Inc., a Delaware corporation.
(j) "Disability" shall have the meaning set forth in Section 22(e)(3)
of the Code.
(k) "Fair Market Value" shall have the meaning set forth in Section
8(b) of the Plan.
(l) "Grantee" shall mean a person to whom an Option or an Award has
been granted pursuant to the Plan.
(m) "ISO" means an Option granted under the Plan which is intended to
qualify as an "incentive stock option" within the meaning of Section 422(b) of
the Code.
(n) "Non-qualified Stock Option" means an Option granted under the
Plan which is not intended to qualify, or otherwise does not qualify, as an
"incentive stock option" within the meaning of Section 422(b) of the Code.
(o) "Option" means either an ISO or a Non-qualified Stock Option
granted under the Plan.
(p) "Optionee" means a person to whom an Option has been granted under
the Plan, which Option has not been exercised and has not expired or terminated.
(q) "Option Document" means the document described in Section 8 of the
Plan, as applicable, which sets forth the terms and conditions of each grant of
Options.
(r) "Option Price" means the price at which Shares may be purchased
upon exercise of an Option, as calculated pursuant to Section 8(b) of the Plan.
(s) "Restricted Stock" means Common Stock subject to conditions of
forfeiture and transfer granted to any person pursuant to an Award under the
Plan.
(t) "Shares" means the Shares of Common Stock of the Company which are
the subject of Options or Awards under the Plan.
3. Administration of the Plan.
--------------------------
(a) Procedure.
---------
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<PAGE>
(i) In General. Other than as provided below, the Plan shall
----------
be administered by (A) the Board or (B) a Committee, which Committee shall be
constituted to satisfy Applicable Laws. The administrator of the Plan shall be
referred to as the "Committee."
(ii) Multiple Administrative Bodies. The Plan may be
------------------------------
administered by different Committees with respect to different persons.
(b) Powers of the Committee. Subject to the provisions of the Plan,
-----------------------
and in the case of a Committee, subject to the specific duties delegated by the
Board to such Committee, the Committee shall have the authority, in its
discretion:
(i) to determine the Fair Market Value;
(ii) to select the persons to whom Options and Awards may be
granted hereunder;
(iii) to determine the number of Shares to be covered by each
Option and Award;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option or Award granted hereunder. Such terms
and conditions include, but are not limited to, the exercise price, the time or
times when Options or Awards may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any Option or Award or the Shares
relating thereto, based in each case on such factors as the Committee, in its
sole discretion, shall determine;
(vi) to reduce the exercise price of any Option or Award to the
then current Fair Market Value if the Fair Market Value of the Common Stock
covered by such Option or Award shall have declined since the date the Option or
Award was granted;
(vii) to institute an option exchange program;
(viii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option or Award (subject to
Section 15(c) of the Plan), including the discretionary authority to extend the
post-termination exercisability period of Options longer than is otherwise
provided for in the Plan;
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<PAGE>
(xi) to allow Grantees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option or Award that number of Shares having a Fair Market Value
equal to the amount required to be withheld. The Fair Market Value of the Shares
to be withheld shall be determined on the date that the amount of tax to be
withheld is to be determined. All elections by a Grantee to have Shares withheld
for this purpose shall be made in such form and under such conditions as the
Committee may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Award
previously granted by the Committee;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Exculpation. No member of the Board of Directors shall be
-----------
personally liable for monetary damages for any action taken or any failure to
take any action in connection with the administration of the Plan or the
granting of Options or Awards under the Plan, provided that this Section 3(c)
shall not apply to (i) any breach of such member's duty of loyalty to the
Company or its stockholders, (ii) acts or omissions not in good faith or
involving intentional misconduct or a knowing violation of law, (iii) acts or
omissions that would result in liability under Section 174 of the General
Corporation Law of the State of Delaware, as amended, and (iv) any transaction
from which the member derived an improper personal benefit.
(d) Indemnification. Service on the Committee shall constitute
---------------
service as a member of the Board of Directors of the Company. Each member of
the Committee shall be entitled without further act on his or her part to
indemnity from the Company to the fullest extent provided by applicable law and
the Company's Certificate of Incorporation and/or By-laws in connection with or
arising out of any action, suit or proceeding with respect to the administration
of the Plan or the granting of Options and Awards thereunder in which he or she
may be involved by reason of his or her being or having been a member of the
Committee, whether or not he or she continues to be a member of the Committee at
the time of the action, suit or proceeding.
4. Options and Awards under the Plan. Options under the Plan may be in
---------------------------------
the form of Non-qualified Stock Options, ISOs, or a combination thereof, at the
discretion of the Committee. Awards under the Plan shall be in the form of
Restricted Stock.
5. Eligibility
-----------
(a) In General. All key employees, members of the Board of Directors,
----------
consultants and advisors of the Company or an Affiliate shall be eligible to
receive Options and Awards hereunder.
(b) Limitations. The following limitations shall apply to grants of
-----------
Options:
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<PAGE>
(i) No Optionee shall be granted, in any fiscal year of the
Company, Options to purchase more than 553,865 Shares.
(ii) In connection with his or her initial service, an Optionee
may be granted Options to purchase up to an additional 553,865 Shares which
shall not count against the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 11.
6. Shares Subject to Plan. The aggregate maximum number of shares for
----------------------
which Awards or Options may be granted pursuant to the Plan is 1,846,218 Shares,
plus an increase to be added each year on the date of the annual stockholders'
meeting equal to the number of Shares required to return the maximum aggregate
number of Shares which may be issued pursuant to the Plan to 1,846,218, or such
lesser number as the Board of Directors may determine. The Shares shall be
issued from authorized and unissued Common Stock or Common Stock held in or
hereafter acquired for the treasury of the Company. If an Option terminates or
expires without having been fully exercised for any reason, or if Shares granted
pursuant to an Award are forfeited for any reason, such Shares may again be the
subject of one or more Options or Awards granted pursuant to the Plan.
7. Term of the Plan. The Plan shall become effective upon its adoption
----------------
by the Board of Directors. It shall continue in effect for a term of ten (10)
years, unless sooner terminated by the Board of Directors.
8. Option Documents and Terms. Each Option granted under the Plan shall
--------------------------
be a Non-qualified Stock Option, unless the Option shall be specifically
designated at the time of grant to be an ISO for federal income tax purposes.
To the extent any Option designated an ISO is determined for any reason not to
qualify as an incentive stock option within the meaning of Section 422 of the
Code, such Option shall be treated as a Non-qualified Stock Option for all
purposes under the provisions of the Plan. Options granted pursuant to the Plan
shall be evidenced by the Option Documents in such form as the Committee shall
from time to time approve, which Option Documents shall comply with and be
subject to the following terms and conditions and such other terms and
conditions as the Committee shall from time to time require which are not
inconsistent with the terms of the Plan.
(a) Number of Option Shares. Each Option Document shall state the
-----------------------
number of Shares to which it pertains. An Optionee may receive more than one
Option, which may include Options which are intended to be ISO's and Options
which are not intended to be ISO's, but only on the terms and subject to the
conditions and restrictions of the Plan.
(b) Option Price. Each Option Document shall state the Option Price
------------
which, for a Non-qualified Stock Option, may be less than, equal to, or greater
than the Fair Market Value of the Shares on the date the Option is granted and,
for an ISO, shall be at least 100% of the Fair Market Value of the Shares on the
date the Option is granted as determined by the Committee in accordance
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<PAGE>
with this Section 8(b); provided, however, that if an ISO is granted to an
Optionee who then owns, directly or by attribution under Section 424(d) of the
Code, shares possessing more than ten percent of the total combined voting power
of all classes of stock of the Company or an Affiliate, then the Option Price
shall be at least 110% of the Fair Market Value of the Shares on the date the
Option is granted. If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Committee deems reliable. If
the Common Stock is regularly quoted by a recognized securities dealer but
selling prices are not reported, its Fair Market Value shall be the mean between
the high bid and low asked prices for the Common Stock on the last market
trading day prior to the day of determination. In the absence of an established
market for the Common Stock, the Fair Market Value thereof shall be determined
in good faith by the Committee.
(c) Exercise. No Option shall be deemed to have been exercised prior
--------
to the receipt by the Company of written notice of such exercise and of payment
in full of the Option Price for the Shares to be purchased. Each such notice
shall specify the number of Shares to be purchased and shall (unless the Shares
are covered by a then current registration statement or a Notification under
Regulation A under the Securities Act of 1933, as amended (the "Act")), contain
the Optionee's acknowledgment in form and substance satisfactory to the Company
that (a) such Shares are being purchased for investment and not for distribution
or resale (other than a distribution or resale which, in the opinion of counsel
satisfactory to the Company, may be made without violating the registration
provisions of the Act), (b) the Optionee has been advised and understands that
(i) the Shares have not been registered under the Act and are "restricted
securities" within the meaning of Rule 144 under the Act and are subject to
restrictions on transfer and (ii) the Company is under no obligation to register
the Shares under the Act or to take any action which would make available to the
Optionee any exemption from such registration, (c) such Shares may not be
transferred without compliance with all applicable federal and state securities
laws, and (d) an appropriate legend referring to the foregoing restrictions on
transfer and any other restrictions imposed under the Option Documents or as may
be endorsed on the certificates. Notwithstanding the foregoing, if the Company
determines that issuance of Shares should be delayed pending (A) registration
under federal or state securities laws, (B) the receipt of an opinion of counsel
satisfactory to the Company that an appropriate exemption from such registration
is available, (C) the listing or inclusion of the Shares on any securities
exchange or an automated quotation system or (D) the consent or approval of any
governmental regulatory body whose consent or approval is necessary in
connection with the issuance of such Shares, the Company may defer exercise of
any Option granted hereunder until any of the events described in this sentence
has occurred.
(d) Medium of Payment. An Optionee shall pay for Shares (i) in cash,
-----------------
(ii) by certified or cashier's check payable to the order of the Company, or
(iii) by such other mode of payment as the Committee may approve, including
payment through a broker in accordance with procedures permitted by Regulation T
of the Federal Reserve Board. Furthermore, the Committee
-6-
<PAGE>
may provide in an Option Document that payment may be made in whole or in part
in shares of the Company's Common Stock held by the Optionee for at least six
(6) months on the date of surrender. If payment is made in whole or in part in
shares of Common Stock, then the Optionee shall deliver to the Company
certificates registered in the name of such Optionee representing the shares
owned by such Optionee, free of all liens, claims and encumbrances of every kind
and having an aggregate Fair Market Value on the date of delivery that is at
least as great as the Option Price of the Shares (or relevant portion thereof)
with respect to which such Option is to be exercised by the payment in shares of
Common Stock, endorsed in blank or accompanied by stock powers duly endorsed in
blank by the Optionee. In the event that certificates for shares of Common Stock
delivered to the Company represent a number of shares of Common Stock in excess
of the number of shares of Common Stock required to make payment for the Option
Price of the Shares (or relevant portion thereof) with respect to which such
Option is to be exercised by payment in shares of Common Stock, the stock
certificate issued to the Optionee shall represent (i) the Shares in respect of
which payment is made, and (ii) such excess number of shares of Common Stock.
Notwithstanding the foregoing, the Committee may impose from time to time such
limitations and prohibitions on the use of shares of Common Stock to exercise an
Option as it deems appropriate.
(e) Termination of Options.
----------------------
(i) No Option shall be exercisable after the first to occur of
the following:
(A) Expiration of the Option term specified in the Option
Document, which, in the case of an ISO, shall not occur after (1) ten years from
the date of grant, or (2) five years from the date of grant of an ISO if the
Optionee on the date of grant owns, directly or by attribution under Section
424(d) of the Code, shares possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or of an Affiliate;
(B) Expiration of three months from the date the
Optionee's employment or service with the Company or its Affiliates terminates
for any reason other than Disability or death or as otherwise specified in
Section 8(e)(i)(D) or 8(e)(i)(E) below;
(C) Expiration of one year from the date such employment
or service with the Company or its Affiliates terminates due to the Optionee's
Disability or death;
(D) A finding by the Committee, after full consideration
of the facts presented on behalf of both the Company and the Optionee, that the
Optionee has breached his or her employment or service contract with the Company
or an Affiliate, or has been engaged in disloyalty to the Company or an
Affiliate, including, without limitation, fraud, embezzlement, theft, commission
of a felony or proven dishonesty in the course of his or her employment or
service, or has disclosed trade secrets or confidential information of the
Company or an Affiliate. In such event, in addition to immediate termination of
the Option, the Optionee shall automatically forfeit all Shares for which the
Company has not yet delivered the share certificates upon refund by the Company
of the Option Price. Notwithstanding anything herein to the contrary, the
Company may
-7-
<PAGE>
withhold delivery of share certificates pending the resolution of any inquiry
that could lead to a finding resulting in a forfeiture;
(E) The date, if any, set by the Board of Directors as an
accelerated expiration date in the event of the liquidation or dissolution of
the Company; or
(F) The occurrence of such other event or events as may be
set forth in the Option Document as causing an accelerated expiration of the
Option.
(ii) The terms of an executive severance agreement or other
agreement between the Company and an Optionee, approved by the Committee,
whether entered into prior or subsequent to the grant of an Option, which
provide for Option exercise dates later than those set forth in Section 8(a)(i)
shall be deemed to be Option terms approved by the Committee and consented to by
the Optionee.
(f) Transfers. No Option granted under the Plan may be transferred,
---------
except by will or by the laws of descent and distribution. During the lifetime
of the person to whom an Option is granted, such Option may be exercised only by
such person. Notwithstanding the foregoing, a Non-qualified Stock Option may be
transferred pursuant to the terms of a "qualified domestic relations order,"
within the meaning of Sections 401(a)(13) and 414(p) of the Code or within the
meaning of Title I of the Employee Retirement Income Security Act of 1974, as
amended, or pursuant to a transfer approved in writing by the Committee, in
which event the Option may be exercised by the transferee.
(g) Limitation on ISO Grants. In no event shall the aggregate Fair
------------------------
Market Value of the Shares (determined at the time the ISO is granted) with
respect to which incentive stock options under all incentive stock option plans
of the Company and its Affiliates are exercisable for the first time by the
Optionee during any calendar year exceed $100,000.
(h) Other Provisions. Subject to the provisions of the Plan, the
----------------
Option Documents shall contain such other provisions including, without
limitation, provisions authorizing the Committee to accelerate the
exercisability of all or any portion of an Option granted pursuant to the Plan,
additional restrictions upon the exercise of the Option or additional
limitations upon the term of the Option, as the Committee shall deem advisable.
(i) Amendment. Subject to the provisions of the Plan, the Committee
---------
shall have the right to amend Option Documents issued to an Optionee, subject to
the Optionee's consent if such amendment is not favorable to the Optionee,
except that the consent of the Optionee shall not be required for any amendment
made pursuant to Section 8(e)(i)(E) or Section 10 of the Plan, as applicable.
9. [INTENTIONALLY DELETED]
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<PAGE>
10. Change of Control. In the event of a Change of Control, the Committee
-----------------
may take whatever action it deems necessary or desirable with respect to the
Options and Awards outstanding, including, without limitation, accelerating the
expiration or termination date in the respective Option Documents to a date no
earlier than thirty (30) days after notice of such acceleration is given to the
Optionees. In addition to the foregoing, in the event of a Change of Control,
Options granted pursuant to the Plan and held by Optionees who are employees,
advisors, or consultants of the Company or members of the Board of Directors at
the time of a Change of Control shall become immediately exercisable in full and
the restrictions applicable to Restricted Stock awarded to Awardees who are
employees, advisors, or consultants of the Company or members of the Board of
Directors at the time of a Change of Control shall immediately lapse and the
Restricted Stock held by the Company shall be delivered to the Grantees.
A "Change of Control" shall be deemed to have occurred upon the
earliest to occur of the following events: (i) the date the stockholders of the
Company (or the Board of Directors, if stockholder action is not required)
approve a plan or other arrangement pursuant to which the Company will be
dissolved or liquidated, or (ii) the date the stockholders of the Company (or
the Board of Directors, if stockholder action is not required) approve a
definitive agreement to sell or otherwise dispose of substantially all of the
assets of the Company, or (iii) the date the stockholders of the Company (or the
Board of Directors, if stockholder action is not required) and the stock
holders of the other constituent corporation (or its board of directors if
stockholder action is not required) have approved a definitive agreement to
merge or consolidate the Company with or into such other corporation, other
than, in either case, a merger or consolidation of the Company in which holders
of shares of the Company's Common Stock immediately prior to the merger or
consolidation will have at least a majority of the ownership of common stock of
the surviving corporation (and, if one class of common stock is not the only
class of voting securities entitled to vote on the election of directors of the
surviving corporation, a majority of the voting power of the surviving
corporation's voting securities) immediately after the merger or consolidation,
which common stock (and, if applicable, voting securities) is to be held in the
same proportion as such holders' ownership of Common Stock of the Company
immediately before the merger or consolidation, or (iv) the date any entity,
person or group, within the meaning of Section 13(d)(3) or Section 14(d)(2) of
the Securities Exchange Act of 1934, as amended, other than the Company or any
of its subsidiaries or any employee benefit plan (or related trust) sponsored or
maintained by the Company or any of its subsidiaries, or any person who does not
conduct any active trade or business shall have become the beneficial owner of,
or shall have obtained voting control over, more than fifty percent (50%) of the
outstanding shares of the Company's Common Stock, or (v) the date that fewer
than a majority of the Board of Directors are Incumbent Directors. "Incumbent
Directors" shall mean directors who either (A) are directors of the Company as
of the effective date of this Plan, or (B) are elected, or nominated for
election to the Board of Directors with the affirmative votes of at least a
majority of those directors whose election or nomination was not in connection
with any transaction described in subsections (i) to (iv) or in connection with
an actual or threatened proxy contest relating to the election of directors of
the Company.
11. Adjustments on Changes in Capitalization.
----------------------------------------
-9-
<PAGE>
(a) In the event that the outstanding Shares are changed by reason of
a reorganization, merger, consolidation, recapitalization, reclassification,
stock split-up, combination or exchange of shares and the like (not including
the issuance of Common Stock on the conversion of other securities of the
Company which are outstanding on the date of grant and which are convertible
into Common Stock) or dividends payable in Shares, an equitable adjustment shall
be made by the Committee in the aggregate number of shares available under the
Plan and in the number of Shares and price per Share subject to outstanding
Options. Unless the Committee makes other provisions for the equitable
settlement of outstanding options, if the Company shall be reorganized,
consolidated, or merged with another corporation, or if all or substantially all
of the assets of the Company shall be sold or exchanged, an Optionee shall at
the time of issuance of the stock under such corporate event be entitled to
receive upon the exercise of his or her Option the same number and kind of
shares of stock or the same amount of property, cash or securities as he or she
would have been entitled to receive upon the occurrence of any such corporate
event as if he or she had been, immediately prior to such event, the holder of
the number of shares covered by his or her Option.
(b) Any adjustment under this Section 11 in the number of Shares
subject to Options shall apply proportionately to only the unexercised portion
of any Option granted hereunder. If fractions of a Share would result from any
such adjustment, the adjustment shall be revised to the next lower whole number
of shares.
(c) The Committee shall have authority to determine the adjustments to
be made under this Section, and any such determination by the Committee shall be
final, binding and conclusive.
12. Terms and Conditions of Awards. Awards granted pursuant to the Plan
------------------------------
shall be evidenced by written Award Agreements in such form as the Committee
shall from time to time approve, which Award Agreements shall comply with and be
subject to the following terms and conditions and such other terms and
conditions as the Committee shall from time to time require which are not
inconsistent with the terms of the Plan. The Committee may, in its sole
discretion, shorten or waive any term or condition with respect to all or any
portion of any Award. Notwithstanding the foregoing, all restrictions shall
lapse or terminate with respect to Restricted Stock upon the death or Disability
of the Awardee.
(a) Number of Shares. Each Award Agreement shall state the number of
----------------
Shares to which it pertains.
(b) Purchase Price. Each Award Agreement shall specify the purchase
--------------
price, if any, which applies to the Award. If the Board specifies a purchase
price, the Awardee shall be required to make payment on or before the date
specified in the Award Agreement. An Awardee shall pay for such Shares (i) in
cash, (ii) by certified check payable to the order of the Company, or (iii) by
such other mode of payment as the Committee may approve.
-10-
<PAGE>
(c) Restrictions on Transfer and Forfeitures. A stock certificate
----------------------------------------
representing the Restricted Stock granted to an Awardee shall be registered in
the Awardee's name but shall be held in escrow by the Company's Treasurer,
together with an undated stock power executed by the Awardee with respect to
each stock certificate representing Restricted Stock registered in such
Awardee's name. The Awardee shall generally have the rights and privileges of a
stockholder as to such Restricted Stock including the right to vote such
Restricted Stock and to receive and retain all cash dividends with respect to
them, except that the following restrictions shall apply: (i) the employee shall
not be entitled to delivery of the certificate until the expiration or
termination of any period designated by the Committee ("Restricted Period") and
the satisfaction of any other conditions prescribed by the Committee; and (ii)
all distributions with respect to the Restricted Stock other than cash
dividends, such as stock dividends, stock splits or distributions of property,
and any distributions (other than cash dividends) subsequently made with respect
to other distributions, shall be delivered to the Treasurer of the Company,
together with appropriate stock powers or other instruments of transfer signed
and delivered to the Treasurer by the Grantee, to be held by the Treasurer and
released to either the Grantee or the Company, as the case may be, together with
the Shares to which they relate; (iii) the Grantee will have no right to sell,
exchange, transfer, pledge, hypothecate or otherwise dispose of any of the
Restricted Stock or distributions (other than cash dividends) with respect
thereto; and (iv) all of the Restricted Stock shall be forfeited and all rights
of the Awardee with respect to such Restricted Stock shall terminate without
further obligation on the part of the Company unless the Awardee has remained an
employee or in service to the Company, any of its affiliates or any combination
thereof until the expiration or termination of the Restricted Period and the
satisfaction of any other conditions prescribed by the Committee applicable to
such Restricted Stock. Upon the forfeiture of any Restricted Stock, such
forfeited shares shall be transferred to the Company without further action by
the Awardee.
(d) Lapse of Restrictions. Upon the expiration or termination of the
---------------------
Restricted Period and the satisfaction of any other conditions prescribed by the
Committee as provided for in the Plan, the restrictions applicable to the
Restricted Stock shall lapse and a stock certificate for the number of Shares
with respect to which the restrictions have lapsed shall be delivered, free of
all such restrictions, except any that may be imposed by law or pursuant to any
shareholders agreement then in effect, to the Awardee or the beneficiary or
estate, as the case may be. The Company shall not be required to deliver any
fractional share of Common Stock but will pay, in lieu thereof, the fair market
value (determined as of the date the restrictions lapse) of such fractional
share to the Awardee or the Awardee's beneficiary or estate, as the case may be.
The Award may provide for the lapse of restrictions on transfer and forfeiture
conditions in installments.
(e) Section 83(b) Elections. An Awardee who files an election with
-----------------------
the Internal Revenue Service to include the fair market value of any Restricted
Stock in gross income while they are still subject to restrictions shall
promptly furnish the Company with a copy of such election together with the
amount of any federal, state, local or other taxes required to be withheld to
enable the Company to claim an income tax deduction with respect to such
election.
(f) Upon a finding by the Committee, after full consideration of the
facts presented on behalf of both the Company and the Awardee, that the Awardee
has breached his or her
-11-
<PAGE>
employment or service contract with the Company or an Affiliate, or has been
engaged in disloyalty to the Company or an Affiliate, including, without
limitation, fraud, embezzlement, theft, commission of a felony or proven
dishonesty in the course of his or her employment or service, or has disclosed
trade secrets or confidential information of the Company or an Affiliate,
Awardee shall automatically forfeit all Restricted Stock for which (i) the
Company has not yet delivered the Share certificates to the Awardee; (ii) the
Restricted Period has not expired or (iii) any restrictions applicable to the
Restricted Stock have not lapsed. Notwithstanding anything herein to the
contrary, the Company may withhold delivery of Restricted Stock certificates
pending the resolution of any inquiry that could lead to a finding resulting in
a forfeiture.
(g) Amendment. Subject to the provisions of the Plan, the Committee
---------
shall have the right to amend Awards issued to an Awardee, subject to the
Awardee's consent if such amendment is not favorable to the Awardee, except that
the consent of the Awardee shall not be required for any amendment made pursuant
to Section 10 of the Plan.
13. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board of Directors may at any time
-------------------------
amend, alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Board of Directors shall obtain
--------------------
shareholder approval of any Plan amendment to the extent necessary and desirable
to comply with applicable laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
14. No Commitment to Retain. The grant of an Option or Award pursuant to
-----------------------
the Plan shall not be construed to imply or to constitute evidence of any
agreement, express or implied, on the part of the Company or any Affiliate to
retain the Grantee in the employ of the Company or an Affiliate and/or as a
member of the Company's Board of Directors or in any other capacity.
15. Withholding of Taxes. Whenever the Company proposes or is required to
--------------------
deliver or transfer Shares in connection with the exercise of an Option or
Award, the Company shall have the right to (a) require the recipient to remit or
otherwise make available to the Company an amount sufficient to satisfy any
federal, state and/or local withholding tax requirements prior to the delivery
or transfer of any certificate or certificates for such Shares or (b) take
whatever other action it may deem necessary to protect its interests with
respect to tax liabilities. The Company's obligation to
-12-
<PAGE>
make any delivery or transfer of Shares shall be conditioned on the Grantee's
compliance, to the Company's satisfaction, with any withholding requirement.
-13-
<PAGE>
GENVEC, INC.
-----------
INCENTIVE STOCK OPTION
----------------------
THIS INCENTIVE STOCK OPTION (the "Option") is granted this ______ day of
___________________, 199__ by GENVEC, INC. a Delaware corporation (the
"Company"), to _________________________ ("Optionee").
WITNESSETH:
----------
1. Grant. The Company hereby grants to Optionee an Option to purchase on
-----
the terms and conditions hereinafter set forth all or any part of an aggregate
of _________ shares of the Company's Common Stock, par value $0.01 (the "Option
Shares") at the purchase price of $______ per share (the "Option Price"). This
Option is intended to be an "incentive stock option" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). This
Option is granted pursuant to the GenVec, Inc. 1993 Stock Incentive Plan as
amended (the "Plan"), a copy of which is attached.
2. Term.
----
(a) General Rule. The Option granted hereunder shall vest as follows:
------------
(1) The option shall be exercisable on _______, __, with respect
to _______ shares and thereafter monthly commencing on ___________, ____, with
respect to _____ shares each month. The Option granted hereunder shall terminate
in all events at 5:00 p.m. Eastern Standard Time ten years from the date hereof,
unless sooner terminated under subsection 2(b) below:
Any installment may be exercised in whole or in part, except that this
Option may in no event be exercised with respect to fractional shares.
(b) Early Termination of Options. Notwithstanding the provisions of
----------------------------
subsection 2 (a), all right to exercise this Option shall terminate upon the
first to occur of the following:
(1) Expiration of three months from the date Optionee's employment
or service with the Company or its Affiliates terminates for any reason other
than Disability (as defined in the Plan), death or as otherwise specified in
subsections 2(b)(3) or 2(b)(4); or
(2) Expiration of one year from the date Optionee's employment or
service with the Company or its Affiliates terminates due to Optionee's
Disability or death; or
(3) A finding by the Committee (as defined in the Plan) after full
consideration of the facts, presented on behalf of both the Company and
Optionee, that Optionee has
<PAGE>
breached his or her employment or service contract with the Company or an
Affiliate, or has been engaged in disloyalty to the Company or an Affiliate,
including, without limitation, fraud, embezzlement, theft, commission of a
felony or proven dishonesty in the course of his or her employment or service,
or has disclosed trade secrets or confidential information of the Company or an
Affiliate. In such event, in addition to immediate termination of the Option,
Optionee shall automatically forfeit all Shares for which the Company has not
yet delivered the share certificates upon refund by the Company of the Option
Price. Notwithstanding anything herein to the contrary, the Company may withhold
delivery of share certificates pending the resolution of any inquiry that could
lead to a finding resulting in a forfeiture; or
(4) The date, if any, set by the Board of Directors as an
accelerated expiration date in the event of the liquidation or dissolution of
the Company.
In the event that the right to exercise this Option terminates
pursuant to either subsection 2(b)(1) or 2(b)(2), this Option may be exercised
during the three-month or one-year period, as the case may be, following the
termination of employment or service only with respect to the number of Option
Shares as to which this Option is exercisable on the date of such termination of
employment or service. Following such termination of employment or service, this
Option may not be exercised with regard to any additional Option Shares covered
by this Option, even though all or a portion of such additional Option Shares
would have become exercisable if Optionee were still employed or rendering
services during such three-month or one-year period.
3. Transfers. This Option is not transferable by Optionee otherwise than
---------
by will or pursuant to the laws of descent and distribution in the event of
Optionee's death (in which event the Option may be exercised by the heirs or
legal representatives of Optionee). Except as expressly set forth in this
Section 3, the Option may be exercised during the lifetime of Optionee only by
Optionee. Any attempt at assignment, transfer, pledge or disposition of the
Option contrary to the provisions hereof or the levy of any execution,
attachment or similar process upon the Option other than as expressly permitted
in this Section 3 shall be null and void and without effect. Any exercise of
the Option by a person other than Optionee shall be accompanied by appropriate
proofs of the right of such person to exercise the Option.
4. Method of Exercise and Payment. When exercisable under Section 2, the
------------------------------
Option may be exercised by written notice to the Company's Treasurer specifying
the number of Option Shares to be purchased. The notice shall be accompanied by
payment of the aggregate Option Price of the Option Shares being purchased (a)
in cash, (b) by certified or cashier's check payable to the order of the
Company, or (c) by payment through a broker in accordance with procedures
permitted by Regulation T of the Federal Reserve Board. Such exercise shall be
effective upon the actual receipt by the Company's Treasurer of such written
notice and payment. In addition, except as provided below, Optionee may make
payment in whole or in part in shares of the Company's Common Stock held by the
Optionee for at least six (6) months on the date of surrender. If payment is
made in whole or in part in shares of the Company's Common Stock, then Optionee
shall deliver to the Company certificates registered in the name of Optionee
representing shares of the Company's Common Stock legally and beneficially owned
by Optionee, free of all liens, claims and encumbrances of every kind and having
a fair market value (as determined under the Plan) on the date of delivery that
is at least as great as the
-2-
<PAGE>
Option Price of the Option Shares (or relevant portion thereof) with respect to
which this Option is to be exercised by payment in shares of Common Stock,
accompanied by stock powers duly endorsed in blank by Optionee. Notwithstanding
the foregoing, the Committee, in its sole discretion, may refuse to accept
shares of the Company's Common Stock in payment of the Option Price or may
impose such other limitations and prohibitions on the use of shares of the
Company's Common Stock to exercise this Option as it deems appropriate. In the
event the Committee refuses to accept shares of the Company's Common Stock in
payment of the Option Price, any certificates representing shares of the
Company's Common Stock which were delivered to the Company shall be returned to
Optionee with notice of the refusal of the Committee to accept such shares in
payment of the Option Price.
5. Adjustments on Changes in Capitalization.
----------------------------------------
(a) In the event that, prior to the delivery by the Company of all of
the Option Shares in respect of which the Option is granted, there shall be a
reorganization, merger, consolidation, recapitalization, reclassification, stock
split-up, combination or exchange of shares and the like (not including the
issuance of Common Stock on the conversion of other securities of the Company
which are convertible into Common Stock) or dividends payable in Shares, an
equitable adjustment shall be made by the Committee in the number of Shares and
price per Share subject to the Option. Unless the Committee makes other
provisions for the equitable settlement of outstanding rights under the Option,
if the Company shall be reorganized, consolidated, or merged with another
corporation, or if all or substantially all of the assets of the Company shall
be sold or exchanged, Optionee shall at the time of issuance of the stock under
such corporate event be entitled to receive upon the exercise of this Option the
same number and kind of shares of stock or the same amount of property, cash or
securities as Optionee would have been entitled to receive upon the occurrence
of any such corporate event as if Optionee had been, immediately prior to such
event, the holder of the Option Shares.
(b) Any adjustment under this Section 5 in the number of Shares
subject to this Option shall apply only to the unexercised portion of this
Option. If fractions of a Share would result from any such adjustment, the
adjustment shall be revised to the next lower whole number of Shares.
(c) The Committee shall have authority to determine the adjustments to
be made under this Section, and any such determination by the Committee shall be
final, binding and conclusive.
6. Change in Control. Notwithstanding anything to the contrary herein,
-----------------
if Optionee is then an employee of, member of the Board of Directors of, or
consultant or advisor to, the Company or an Affiliate, upon a Change in Control
(as defined in the Plan), the exercise date of all Option Shares then subject to
this Option shall automatically accelerate to the date of the Change in Control.
7. Legal Requirements. If the listing, inclusion, registration or
------------------
qualification of the Option Shares upon any securities exchange, in any
automated quotation system, or under any federal or state law, or the consent or
approval of any governmental regulatory body is necessary as a condition of or
in connection with the purchase of any Option Shares, the Company shall not be
obligated to issue or deliver the certificates representing the Option Shares as
to which this Option has been exercised unless and until such listing,
inclusion, registration, qualification, consent or approval shall have been
effected
-3-
<PAGE>
or obtained. If registration is considered unnecessary by the Company, the
Company may cause a legend to be placed on the Option Shares being issued
calling attention to their having been acquired for investment and not having
been registered.
8. Plan Provisions; Administration. This Option has been granted
-------------------------------
pursuant to and is subject to the terms and provisions of the Plan. All
questions of interpretation and application of the Plan and this Option shall be
determined by the Committee. The Committee's determination shall be final,
binding and conclusive.
9. Notices. Any notice to be given to the Company shall be in writing
-------
and shall be addressed to the Treasurer of the Company at its principal
executive office, and any notice to be given to Optionee shall be addressed to
Optionee at the address then appearing in the records of the Company or the
Affiliate of the Company by which he is employed or for which he has rendered
services, or at such other address as either party hereafter may designate in
writing to the other. Except as otherwise set forth herein, any such notice
shall be deemed to have been duly given, made and received only when personally
delivered, or on the day delivery is guaranteed when transmitted, addressed as
aforesaid, to a third party company or governmental entity providing delivery
services in the ordinary course of business, or two days following the day when
deposited in the United States mails, by registered or certified mail, postage
prepaid, return receipt requested, addressed as aforesaid. Notwithstanding the
foregoing, any notice of exercise pursuant to Section 4 shall be deemed to have
been duly given, made or received only upon actual receipt by, or upon tender of
delivery to the addressee of such notice.
10. No Commitment to Retain. Nothing herein contained shall affect the
-----------------------
right of the Company or any Affiliate to terminate Optionee's employment,
services, responsibilities, duties, or authority to represent the Company or any
Affiliate at any time for any reason whatsoever.
11. Amendment. The Board of Directors of the Company shall have the right
---------
to amend this Option, subject to Optionee's consent if such amendment is not
favorable to Optionee, except that the consent of Optionee shall not be required
for any amendment made pursuant to Section 8(e)(i)(E), Section 10 or Section 11
of the Plan.
12. Withholding of Taxes. Whenever the Company proposes or is required to
--------------------
deliver or transfer Option Shares in connection with the exercise of this
Option, the Company shall have the right to (a) require the recipient to remit
to the Company an amount sufficient to satisfy any federal, state and/or local
withholding tax requirements prior to the delivery or transfer of any
certificate or certificates for such Option Shares or (b) take whatever action
it deems necessary to protect its interests with respect to tax liabilities.
13. Notification of Company Upon Early Disposition of Option Shares. If,
---------------------------------------------------------------
following the exercise of this Option in whole or in part, Optionee disposes of
any Option Shares within two years from the date of grant of this Option or
within one year after the transfer of the Option Shares to Optionee, Optionee
shall give notice in writing to the Committee of such disposition and shall
provide the Committee with such other information as the Committee may
reasonably request.
-4-
<PAGE>
IN WITNESS WHEREOF, the Company has granted this Option on the day and year
first above written.
GENVEC, INC.
By: _______________________________
Paul Fischer,
President and Chief Executive Officer
ACKNOWLEDGED:
By: _______________________________
-5-
<PAGE>
GENVEC, INC.
------------
NON-QUALIFIED STOCK OPTION
--------------------------
THIS NON-QUALIFIED STOCK OPTION (the "Option") is granted this ____ day of
__________________, 199__ by GENVEC, INC., a Delaware corporation (the
"Company"), to ________________________ ("Optionee").
W I T N E S S E T H:
--------------------
1. Grant. The Company hereby grants to Optionee an option to purchase on
-----
the terms and conditions hereinafter set forth all or any part of an aggregate
of _______ shares of the Company's Common Stock, par value $0.01 (the "Option
Shares"), at the purchase price of $_____ per share (the "Option Price") . This
Option is not intended to be an "incentive stock option" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). This
Option is granted pursuant to the GenVec, Inc. 1993 Stock Incentive Plan, as
amended (the "Plan") , a copy of which is attached.
2. Term.
----
(a) General Rule. The Option granted hereunder shall vest as follows:
------------
(1) The option shall be exercisable on _______, __, with respect
to _______ shares and thereafter monthly commencing on ___________, ____, with
respect to _____ shares each month. The Option granted hereunder shall terminate
in all events at 5:00 p.m. Eastern Standard Time ten years from the date hereof,
unless sooner terminated under subsection 2(b) below:
Any installment may be exercised in whole or in part, except that this
Option may in no event be exercised with respect to fractional shares.
(b) Early Termination of Option. Notwithstanding the provisions of
---------------------------
subsection 2(a), all right to exercise this Option shall terminate upon the
first to occur of the following:
(1) Expiration of three months from the date Optionee's employment
or service with the Company or its Affiliates terminates for any reason other
than Disability (as defined in the Plan), death or as otherwise specified in
subsections 2(b)(3) or 2(b)(4); or
(2) Expiration of one year from the date Optionee's employment or
service with the Company or its Affiliates terminates due to Optionee's
Disability or death; or
(3) A finding by the Committee (as defined in the Plan) after full
consideration of the facts presented on behalf of both the Company and Optionee,
that Optionee has
<PAGE>
breached his or her employment or service contract with the Company or an
Affiliate, or has been engaged in disloyalty to the Company or an Affiliate,
including, without limitation, fraud, embezzlement, theft, commission of a
felony or proven dishonesty in the course of his or her employment or service,
or has disclosed trade secrets or confidential information of the Company or an
Affiliate. In such event, in addition to immediate termination of the Option,
Optionee shall automatically forfeit all Shares for which the Company has not
yet delivered the share certificates upon refund by the Company of the Option
Price. Notwithstanding anything herein to the contrary, the Company may withhold
delivery of share certificates pending the resolution of any inquiry that could
lead to a finding resulting in a forfeiture; or
(4) The date, if any, set by the Board of Directors as an
accelerated expiration date in the event of the liquidation or dissolution of
the Company.
In the event that the right to exercise this Option terminates
pursuant to either subsection 2 (b) (1) or 2 (b) (2), this Option may be
exercised during the three-month or one-year period, as the case may be,
following the termination of employment or service only with respect to the
number of Option Shares as to which this Option is exercisable on the date of
such termination of employment or service. Following such termination of
employment or service, this Option may not be exercised with regard to any
additional Option Shares covered by this Option, even though all or a portion of
such additional Option Shares would have become exercisable if Optionee were
still employed or rendering services during such three-month or one-year period.
3. Transfers. This Option is not transferable by Optionee otherwise than
---------
by will or pursuant to the laws of descent and distribution in the event of
Optionee's death (in which event the Option may be exercised by the heirs or
legal representatives of Optionee) or pursuant to the terms of a "qualified
domestic relations order," within the meaning of Sections 401(a) (13) and 414
(p) of the Code or within the meaning of Title I of the Employee Retirement
Income Security Act of 1974, as amended. Except as expressly set forth in this
Section 3, the Option may be exercised during the lifetime of Optionee only by
Optionee. Any attempt at assignment, transfer, pledge or disposition of the
Option contrary to the provisions hereof or the levy of any execution,
attachment or similar process upon the Option other than as expressly permitted
in this Section 3 shall be null and void and without effect. Any exercise of
the Option by a person other than Optionee shall be accompanied by appropriate
proofs of the right of such person to exercise the Option.
4. Method of Exercise and Payment. When exercisable under Section 2, the
------------------------------
Option may be exercised by written notice to the Company's Treasurer specifying
the number of Option Shares to be purchased. The notice shall be accompanied by
payment of the aggregate Option Price of the Option Shares being purchased (a)
in cash, (b) by certified or cashier's check payable to the order of the
Company, or (c) by payment through a broker in accordance with procedures
permitted by Regulation T of the Federal Reserve Board. Such exercise shall be
effective upon the actual receipt by the Company's Treasurer of such written
notice and payment. In addition, except as provided below, Optionee may make
payment in whole or in part in shares of the Company's Common Stock held by the
Optionee for at least six (6) months on the date of surrender. If payment is
made in whole or in part in shares of the Company's Common Stock, then Optionee
shall deliver to the Company certificates
-2-
<PAGE>
registered in the name of Optionee representing shares of the Company's Common
Stock legally and beneficially owned by Optionee, free of all liens, claims and
encumbrances of every kind and having a fair market value (as determined under
the Plan) on the date of delivery that is at least as great as the Option Price
of the Option Shares (or relevant portion thereof) with respect to which this
Option is to be exercised by payment in shares of Common Stock, accompanied by
stock powers duly endorsed in blank by Optionee. Notwithstanding the foregoing,
the Committee, in its sole discretion, may refuse to accept shares of the
Company's Common Stock in payment of the Option Price or may impose such other
limitations and prohibitions on the use of shares of the Company's Common Stock
to exercise this Option as it deems appropriate. In the event the Committee
refuses to accept shares of the Company's Common Stock in payment of the Option
Price, any certificates representing shares of the Company's Common Stock which
were delivered to the Company shall be returned to Optionee with notice of the
refusal of the Committee to accept such shares in payment of the Option Price.
5. Adjustments on Changes in Capitalization.
----------------------------------------
(a) In the event that, prior to the delivery by the Company of all of
the Option Shares in respect of which the Option is granted, there shall be a
reorganization, merger, consolidation, recapitalization, reclassification, stock
split-up, combination or exchange of shares and the like (not including the
issuance of Common Stock on the conversion of other securities of the Company
which are convertible into Common Stock) or dividends payable in Shares, an
equitable adjustment shall be made by the Committee in the number of Shares and
price per Share subject to the Option. Unless the Committee makes other
provisions for the equitable settlement of outstanding rights under the Option,
if the Company shall be reorganized, consolidated, or merged with another
corporation, or if all or substantially all of the assets of the Company shall
be sold or exchanged, Optionee shall at the time of issuance of the stock under
such corporate event be entitled to receive upon the exercise of this Option the
same number and kind of shares of stock or the same amount of property, cash or
securities as Optionee would have been entitled to receive upon the occurrence
of any such corporate event as if Optionee had been, immediately prior to such
event, the holder of the Option Shares.
(b) Any adjustment under this Section 5 in the number of Shares
subject to this Option shall apply only to the unexercised portion of this
Option. If fractions of a Share would result from any such adjustment, the
adjustment shall be revised to the next lower whole number of Shares.
(c) The Committee shall have authority to determine the adjustments to
be made under this Section, and any such determination by the Committee shall be
final, binding and conclusive.
6. Change in Control. Notwithstanding anything to the contrary herein,
-----------------
if Optionee is then an employee of, member of the Board of Directors of, or
consultant or advisor to, the Company or an Affiliate, upon a Change in Control
(as defined in the Plan), the exercise date of all Option Shares then subject to
this Option shall automatically accelerate to the date of the Change in Control.
7. Legal Requirements. If the listing, inclusion, registration or
------------------
qualification of the Option Shares upon any securities exchange, in any
automated quotation system, or under any federal or state law, or the consent or
approval of any governmental regulatory body is necessary as a condition of or
-3-
<PAGE>
in connection with the purchase of any Option Shares, the Company shall not be
obligated to issue or deliver the certificates representing the Option Shares as
to which this Option has been exercised unless and until such listing,
inclusion, registration, qualification, consent or approval shall have been
effected or obtained. If registration is considered unnecessary by the Company,
the Company may cause a legend to be placed on the Option Shares being issued
calling attention to their having been acquired for investment and not having
been registered.
8. Plan Provisions; Administration. This Option has been granted
-------------------------------
pursuant to and is subject to the terms and provisions of the Plan. All
questions of interpretation and application of the Plan and this Option shall be
determined by the Committee. The Committee's determination shall be final,
binding and conclusive.
9. Notices. Any notice to be given to the Company shall be in writing
-------
and shall be addressed to the Treasurer of the Company at its principal
executive office, and any notice to be given to Optionee shall be addressed to
Optionee at the address then appearing in the records of the Company or the
Affiliate of the Company by which he is employed or for which he has rendered
services, or at such other address as either party hereafter may designate in
writing to the other. Except as otherwise set forth herein, any such notice
shall be deemed to have been duly given, made and received only when personally
delivered, or on the day delivery is guaranteed when transmitted, addressed as
aforesaid, to a third party company or governmental entity providing delivery
services in the ordinary course of business, or two days following the day when
deposited in the United States mails, by registered or certified mail, postage
prepaid, return receipt requested, addressed as aforesaid. Notwithstanding the
foregoing, any notice of exercise pursuant to Section 4 shall be deemed to have
been duly given, made or received only upon actual receipt by, or upon tender of
delivery to the addressee of such notice.
10. No Commitment to Retain. Nothing herein contained shall affect the
-----------------------
right of the Company or any Affiliate to terminate Optionee's employment,
services, responsibilities, duties, or authority to represent the Company or any
Affiliate at any time for any reason whatsoever.
11. Amendment. The Board of Directors of the Company shall have the right
---------
to amend this Option, subject to Optionee's consent if such amendment is not
favorable to Optionee, except that the consent of Optionee shall not be required
for any amendment made pursuant to Section 8 (e) (i) (E), Section 10 or Section
11 of the Plan.
12. Withholding of Taxes. Whenever the company proposes or is required to
--------------------
deliver or transfer Option Shares in connection with the exercise of this
Option, the Company shall have the right to (a) require the recipient to remit
to the Company an amount sufficient to satisfy any federal, state and/or local
withholding tax requirements prior to the delivery or transfer of any
certificate or certificates for such Option Shares or (b) take whatever action
it deems necessary to protect its interests with respect to tax liabilities.
-4-
<PAGE>
IN WITNESS WHEREOF, the Company has granted this option on the day and year
first above written.
GENVEC, INC.
By: ___________________________________
Paul Fischer, President and Chief
Executive Officer
ACKNOWLEDGED:
By: ___________________________________
Optionee
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<PAGE>
EXHIBIT 10.3
------------
GENVEC, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1998 Employee Stock Purchase
Plan of GenVec, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
(a) "Board" shall mean the Board of Directors of the Company.
-----
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" shall mean the Common Stock of the Company.
------------
(d) "Company" shall mean GenVec, Inc. and any Designated Subsidiary of
-------
the Company.
(e) "Compensation" shall mean all base straight time gross earnings
------------
and commissions, but exclusive of payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary which has been
---------------------
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of the
--------
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first day of each Offering
---------------
Period.
<PAGE>
(i) "Exercise Date" shall mean the last day of each Purchase Period.
-------------
(j) "Fair Market Value" shall mean, as of any date, the value of
-----------------
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day on the date of such determination, as reported in
The Wall Street Journal or such other source as the Board deems reliable, or;
(2) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of such determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable, or;
(3) In the absence of an established market for the Common Stock,
the Fair Market Value thereof shall be determined in good faith by the Board,
or;
(4) For purposes of the Enrollment Date of the first Offering
Period under the Plan, the Fair Market Value shall be the initial price to the
public as set forth in the final prospectus included within the registration
statement in Form S-1 (the "Registration Statement") filed with the Securities
and Exchange Commission for the initial public offering of the Company's Common
Stock (the "IPO").
(k) "Offering Periods" shall mean the periods of approximately twenty-
----------------
four (24) months during which an option granted pursuant to the Plan may be
exercised, commencing on the first Trading Day on or after May 1 and November 1
of each year and terminating on the last Trading Day in the periods ending
twenty-four months later; provided, however, that the first Offering Period
under the Plan shall commence with the first Trading Day on or after the date on
which the Securities and Exchange Commission declares the Company's Registration
Statement effective and ending on the last Trading Day on or before April 30,
2000. The duration and timing of Offering Periods may be changed pursuant to
Section 4 of this Plan.
(l) "Plan" shall mean this Employee Stock Purchase Plan.
----
(m) "Purchase Price" shall mean 85% of the Fair Market Value of a
--------------
share of Common Stock on the Enrollment Date or on the Exercise Date, whichever
is lower; provided however, that, in the event (i) the Company's stockholders
approve an increase in the number of shares available for issuance under the
Plan (the "New Shares"), (ii) all or a portion of the New Shares are to be
issued with respect to one or more Offering Periods that are underway at the
time of
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<PAGE>
such stockholder approval, and (iii) the Fair Market Value of a share of
Common Stock on the date of such approval (the "Authorization Date FMV") is
higher than the Fair Market Value on the Enrollment Date for any such Offering
Period, the Purchase Price with respect to the New Shares shall be 85% of the
Authorization Date FMV or the Fair Market Value of a share of Common Stock on
the Exercise Date, whichever is lower. In addition, with respect to future
Offering Periods, the Board may, in its absolute discretion, provide that the
Purchase Price shall be 85% of the Fair Market Value of a share of Common Stock
on the Exercise Date.
(n) "Purchase Period" shall mean the approximately six month period
---------------
commencing after one Exercise Date and ending with the next Exercise Date,
except that the first Purchase Period of any Offering Period shall commence on
the Enrollment Date and end with the next Exercise Date.
(o) "Reserves" shall mean the number of shares of Common Stock covered
--------
by each option under the Plan which have not yet been exercised and the number
of shares of Common Stock which have been authorized for issuance under the Plan
but not yet placed under option.
(p) "Subsidiary" shall mean a corporation, domestic or foreign, of
----------
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock exchanges
-----------
and the Nasdaq System are open for trading.
3. Eligibility.
-----------
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive,
----------------
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after May 1
-3-
<PAGE>
and November 1 each year, or on such other date as the Board shall determine,
and continuing thereafter until terminated in accordance with Section 20 hereof;
provided, however, that the first Offering Period under the Plan shall commence
with the first Trading Day on or after the date on which the Securities and
Exchange Commission declares the Company's Registration Statement effective and
ending on the last Trading Day on or before April 30, 2000. The Board shall have
the power to change the duration of Offering Periods (including the commencement
dates thereof) with respect to future offerings without stockholder approval if
such change is announced at least five (5) days prior to the scheduled beginning
of the first Offering Period to be affected thereafter.
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
------------------
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding 10% of the Compensation
which he or she receives on each pay day during the Offering Period.
(b) All payroll deductions made for a participant shall be credited
to his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions during the Offering Period by completing or filing
with the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
-4-
<PAGE>
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time during a
Purchase Period. Payroll deductions shall recommence at the rate provided in
such participant's subscription agreement at the beginning of the first Purchase
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
---------------
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than 5,000
shares of the Company's Common Stock (subject to any adjustment pursuant to
Section 19), and provided further that such purchase shall be subject to the
limitations set forth in Sections 3(b) and 12 hereof. Exercise of the option
shall occur as provided in Section 8 hereof, unless the participant has
withdrawn pursuant to Section 10 hereof. The option shall expire on the last day
of the Offering Period.
8. Exercise of Option.
------------------
(a) Unless a participant withdraws from the Plan as provided in
Section 10 hereof, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to
purchase shares hereunder is exercisable only by him or her.
-5-
<PAGE>
(b) If the Board determines that, on a given Exercise Date, the number
of shares with respect to which options are to be exercised may exceed (i) the
number of shares of Common Stock that were available for sale under the Plan on
the Enrollment Date of the applicable Offering Period, or (ii) the number of
shares available for sale under the Plan on such Exercise Date, the Board may in
its sole discretion (x) provide that the Company shall make a pro rata
allocation of the shares of Common Stock available for purchase on such
Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall
be practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Exercise Date, and continue all Offering Periods then in effect, or (y) provide
that the Company shall make a pro rata allocation of the shares available for
purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform
a manner as shall be practicable and as it shall determine in its sole
discretion to be equitable among all participants exercising options to purchase
Common Stock on such Exercise Date, and terminate any or all Offering Periods
then in effect pursuant to Section 20 hereof. The Company may make a pro rata
allocation of the shares available on the Enrollment Date of any applicable
Offering Period pursuant to the preceding sentence, notwithstanding any
authorization of additional shares for issuance under the Plan by the Company's
stockholders subsequent to such Enrollment Date.
9. Delivery. As promptly as practicable after each Exercise Date on
--------
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. Withdrawal.
----------
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the participant's payroll deductions
credited to his or her account shall be paid to such participant promptly after
receipt of notice of withdrawal and such participant's option for the Offering
Period shall be automatically terminated, and no further payroll deductions for
the purchase of shares shall be made for such Offering Period. If a participant
withdraws from an Offering Period, payroll deductions shall not resume at the
beginning of the succeeding Offering Period unless the participant delivers to
the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not have
any effect upon his or her eligibility to participate in any similar plan which
may hereafter be adopted by the Company or in succeeding Offering Periods under
this Plan.
11. Termination of Employment.
-------------------------
Upon a participant's ceasing to be an Employee, for any reason, he or
she shall be deemed to have elected to withdraw from the Plan and the payroll
deductions credited to such
-6-
<PAGE>
participant's account during the Offering Period but not yet used to exercise
the option shall be returned to such participant or, in the case of his or her
death, to the person or persons entitled thereto under Section 15 hereof, and
such participant's option shall be automatically terminated. The preceding
sentence notwithstanding, a participant who receives payment in lieu of notice
of termination of employment shall be treated as continuing to be an Employee
for the participant's customary number of hours per week of employment during
the period in which the participant is subject to such payment in lieu of
notice.
12. Interest. No interest shall accrue on the payroll deductions of a
--------
participant in the Plan.
13. Stock.
-----
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be 350,000 shares/*/, plus an increase to be automatically added each year
on the date of the annual stockholders' meeting equal to (i) the number of
shares required to return the maximum aggregate number of shares which may be
made available for sale under the Plan to 350,000 shares, or (ii) a lesser
number as determined by the Board.
(b) The participant shall have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
--------------
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision
and determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such partici-
________________
/*/ Such number, and all other share numbers in this Plan, reflects the 5.9 for
1 reverse stock split effected in May 1998.
-7-
<PAGE>
pant's death subsequent to an Exercise Date on which the option is exercised but
prior to delivery to such participant of such shares and cash. In addition, a
participant may file a written designation of a beneficiary who is to receive
any cash from the participant's account under the Plan in the event of such
participant's death prior to exercise of the option. If a participant is married
and the designated beneficiary is not the spouse, spousal consent shall be
required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and
in the absence of a beneficiary validly designated under the Plan who is living
at the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
---------------
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the Company
------------
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each participant
-------
in the Plan. Statements of account shall be given to participating Employees at
least annually, which statements shall set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
---------------------------------------------------------------------
Merger or Asset Sale.
--------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
stockholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each Purchase Period (pursuant to Section 7), as well
as the price per share and the number of shares of Common Stock covered by each
option under the Plan which has not yet been exercised shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
-8-
<PAGE>
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration". Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
--------------------
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, any Purchase Periods
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date") and any Offering Periods then in progress shall end on the New
Exercise Date. The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
20. Amendment or Termination.
------------------------
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 19 hereof, no
such termination or amendment can affect options previously granted; provided,
however, that an Offering Period may be shortened or terminated by the Board, in
its absolute discretion, at any time; provided, further, that with respect to
future Offering Periods, the Board may alter the Purchase Price as provided in
Section 2(n). Except as provided in Section 19 hereof, no amendment may make
any change in any option theretofore granted which adversely affects the rights
of any participant. To the extent necessary and desirable to comply with
Section 423 of the Code (or any successor rule or provision
-9-
<PAGE>
or any other applicable law, regulation or stock exchange rule), the Company
shall obtain stockholder approval in such a manner and to such a degree as
required.
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
21. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the effective date
------------
of the IPO. It shall continue in effect for a term of ten (10) years unless
sooner terminated under Section 20 hereof.
24. Automatic Transfer to Low Price Offering Period. To the extent
-----------------------------------------------
permitted by any applicable laws, regulations, or stock exchange rules, if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their
-10-
<PAGE>
option on such Exercise Date and automatically re-enrolled in the immediately
following Offering Period as of the first day thereof.
-11-
<PAGE>
EXHIBIT A
---------
GENVEC, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
____ Original Application Enrollment Date: ___________
____ Change in Payroll Deduction Rate
____ Change of Beneficiary(ies)
1. _____________________________________________________ hereby elects to
participate in the GenVec, Inc. 1998 Employee Stock Purchase Plan (the
"Employee Stock Purchase Plan") and subscribes to purchase shares of the
Company's Common Stock in accordance with this Subscription Agreement and
the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (from 1 to _____%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan, including without limitation
Section 2(n) relating to adjustment of the Purchase Price and Section 20
relating to the amendment or termination of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is subject
to stockholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only):
___________________________________________________________________________
___________.
6. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after the
Exercise Date, I will be treated for federal income tax purposes
<PAGE>
as having received ordinary income at the time of such disposition in an
amount equal to the excess of the fair market value of the shares at the
time such shares were purchased by me over the price which I paid for the
shares. I hereby agree to notify the Company in writing within 30 days
--------------------------------------------------------------
after the date of any disposition of my shares and I will make adequate
-----------------------------------------------------------------------
provision for Federal, state or other tax withholding obligations, if any,
-------------------------------------------------------------------------
which arise upon the disposition of the Common Stock. The Company may, but
----------------------------------------------------
will not be obligated to, withhold from my compensation the amount
necessary to meet any applicable withholding obligation including any
withholding necessary to make available to the Company any tax deductions
or benefits attributable to sale or early disposition of Common Stock by
me. If I dispose of such shares at any time after the expiration of the 2-
year and 1-year holding periods, I understand that I will be treated for
federal income tax purposes as having received income only at the time of
such disposition, and that such income will be taxed as ordinary income
only to the extent of an amount equal to the lesser of (1) the excess of
the fair market value of the shares at the time of such disposition over
the purchase price which I paid for the shares, or (2) 15% of the fair
market value of the shares on the first day of the Offering Period. The
remainder of the gain, if any, recognized on such disposition will be taxed
as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)______________________________________________
(First) (Middle) (Last)
____________________________ ______________________________________________
Relationship
_____________________________________________
(Address)
-2-
<PAGE>
Employee's Social
Security Number: ____________________________________
Employee's Address: ____________________________________
____________________________________
____________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:_________________________ ________________________________________
Signature of Employee
________________________________________
Spouse's Signature (If beneficiary other than
spouse)
-3-
<PAGE>
EXHIBIT B
---------
GENVEC, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the GenVec, Inc. 1998
Employee Stock Purchase Plan which began on ____________, 19____ (the
"Enrollment Date") hereby notifies the Company that he or she hereby withdraws
from the Offering Period. He or she hereby directs the Company to pay to the
undersigned as promptly as practicable all the payroll deductions credited to
his or her account with respect to such Offering Period. The undersigned
understands and agrees that his or her option for such Offering Period will be
automatically terminated. The undersigned under stands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Subscription
Agreement.
Name and Address of Participant:
________________________________
________________________________
________________________________
Signature:
________________________________
Date:____________________________
<PAGE>
EXHIBIT 10.4
------------
GENVEC, INC.
1998 DIRECTOR OPTION PLAN
1. Purposes of the Plan. The purposes of this 1998 Director Option Plan
--------------------
are to attract and retain the best available personnel for service as Outside
Directors (as defined below) of the Company, to provide additional incentive to
the Outside Directors of the Company to serve as Directors, and to encourage
their continued service on the Board.
All options granted hereunder shall be nonstatutory stock options.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Board" means the Board of Directors of the Company.
-----
(b) "Code" means the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" means the common stock of the Company.
------------
(d) "Company" means GenVec, Inc., a Delaware corporation.
-------
(e) "Director" means a member of the Board.
--------
(f) "Employee" means any person, including officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a Director's fee by the Company shall not be sufficient in and of itself to
constitute "employment" by the Company.
(g) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(h) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable; or
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock for the last market
<PAGE>
trading day prior to the time of determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
Notwithstanding the foregoing, with respect to any Options granted
upon the effective date of the IPO, as set forth in Section 4 below, the Fair
Market Value shall be the price as it appears in the final prospectus relating
to the IPO.
(i) "Inside Director" means a Director who is an Employee.
---------------
(j) "New Outside Director" means an Outside Director who joins the
--------------------
Board after March 31, 1998.
(k) "Option" means a stock option granted pursuant to the Plan.
------
(l) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(m) "Optionee" means a Director who holds an Option.
--------
(n) "Outside Director" means a Director who is not an Employee.
----------------
(o) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(p) "Plan" means this 1998 Director Option Plan.
----
(q) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 10 of the Plan.
(r) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the code.
3. Stock Subject to the Plan. Subject to the provisions of Section 10 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 130,000 Shares of Common Stock/*/ (the "Pool"). The Shares
may be authorized, but unissued, or reacquired Common Stock.
______________________
/*/Such number, and all other share numbers in this Plan, reflect the 5.9
for 1 reverse stock split effected in May 1998.
-2-
<PAGE>
If an Option expires or becomes unexercisable without having been
exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan.
4. Administration and Grants of Options under the Plan.
---------------------------------------------------
(a) Procedure for Grants. All grants of Options to Outside Directors
--------------------
under this Plan shall be automatic and nondiscretionary and shall be made
strictly in accordance with the following provisions:
(i) No person shall have any discretion to select which Outside
Directors shall be granted Options or to determine the number of Shares to be
covered by Options granted to Outside Directors.
(ii) Each New Outside Director shall be automatically granted an
Option to purchase 10,000 Shares (the "First Option") on the later of (i) the
effective date of the Company's initial public offering (the "IPO") or (ii) the
date on which such person first becomes a New Outside Director, whether through
election by the stockholders of the Company or appointment by the Board to fill
a vacancy; provided, however, that an Inside Director who ceases to be an Inside
Director but who remains a Director shall not receive a First Option.
(iii) Each Outside Director shall be automatically granted an
Option to purchase 5,000 Shares (a "Subsequent Option") (1) commencing on the
effective date of the IPO (provided that any New Outside Director as of the IPO
shall not receive such 5,000 share grant on the IPO and shall instead receive
the 10,000 share option grant referred to in (ii) above), and (2) thereafter, on
the date of the Company's Annual Stockholder Meeting of each year, provided he
or she is then an Outside Director, and, provided that as of such date, such
Outside Director shall have served on the Board for at least the preceding six
(6) months.
(iv) Notwithstanding the provisions of subsections (ii) and
(iii) hereof, any exercise of an Option granted before the Company has obtained
stockholder approval of the Plan in accordance with Section 16 hereof shall be
conditioned upon obtaining such stockholder approval of the Plan in accordance
with Section 16 hereof.
(v) The terms of a First Option granted hereunder shall be
as follows:
(A) the term of the First Option shall be ten (10) years.
(B) the First Option shall be exercisable only while the
New Outside Director remains a Director of the Company, except as set forth in
Sections 8 and 10 hereof.
(C) the exercise price per Share shall be one hundred
percent (100%) of the Fair Market Value per Share on the date of grant of the
First Option.
-3-
<PAGE>
(D) subject to Section 10 hereof, the First Option shall
become exercisable as to twenty-five percent (25%) of the Shares subject to the
First Option on each anniversary of its date of grant, provided that the
Optionee continues to serve as a Director on such dates.
(vi) The terms of a Subsequent Option granted hereunder shall be
as follows:
(A) the term of the Subsequent Option shall be ten (10)
years.
(B) the Subsequent Option shall be exercisable only while
the Outside Director remains a Director of the Company, except as set forth in
Sections 8 and 10 hereof.
(C) the exercise price per Share shall be one hundred
percent 100% of the Fair Market Value per Share on the date of grant of the
Subsequent Option.
(D) subject to Section 10 hereof, the Subsequent Option
shall become exercisable as to twenty-five percent (25%) of the Shares subject
to the Subsequent Option on each anniversary of its date of grant, provided that
the Optionee continues to serve as a Director on such dates.
(vii) In the event that any Option granted under the Plan would
cause the number of Shares subject to outstanding Options plus the number of
Shares previously purchased under Options to exceed the Pool, then the remaining
Shares available for Option grant shall be granted under Options to the Outside
Directors on a pro rata basis. No further grants shall be made until such time,
if any, as additional Shares become available for grant under the Plan through
action of the Board or the stockholders to increase the number of Shares which
may be issued under the Plan or through cancellation or expiration of Options
previously granted hereunder.
5. Eligibility. Options may be granted only to Outside Directors. All
-----------
Options shall be automatically granted in accordance with the terms set forth in
Section 4 hereof.
The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate the Director's relationship with the Company at any time.
6. Term of Plan. The Plan shall become effective upon the effective date
------------
of the IPO. It shall continue in effect for a term of ten (10) years unless
sooner terminated under Section 11 of the Plan.
-4-
<PAGE>
7. Form of Consideration. The consideration to be paid for the Shares to
---------------------
be issued upon exercise of an Option, including the method of payment, shall
consist of (i) cash, (ii) check, (iii) other shares which (x) in the case of
Shares acquired upon exercise of an Option, have been owned by the Optionee for
more than six (6) months on the date of surrender, and (y) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised, (iv) consideration received
by the Company under a cashless exercise program implemented by the Company in
connection with the Plan, or (v) any combination of the foregoing methods of
payment.
8. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times as are set forth in Section
4 hereof; provided, however, that no Options shall be exercisable until
stockholder approval of the Plan in accordance with Section 16 hereof has been
obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 7 of the Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date the stock certificate is issued, except as provided in Section 10 of
the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Continuous Status as a Director. Subject to
----------------------------------------------
Section 10 hereof, in the event an Optionee's status as a Director terminates
(other than upon the Optionee's death or total and permanent disability (as
defined in Section 22(e)(3) of the Code)), the Optionee may exercise his or her
Option, but only within three (3) months following the date of such termination,
and only to the extent that the Optionee was entitled to exercise it on the date
of such termination (but in no event later than the expiration of its ten (10)
year term). To the extent that the Optionee was not entitled to exercise an
Option on the date of such termination, and to the extent that the Optionee does
not exercise such Option (to the extent otherwise so entitled) within the time
specified herein, the Option shall terminate.
-5-
<PAGE>
(c) Disability of Optionee. In the event Optionee's status as a
----------------------
Director terminates as a result of total and permanent disability (as defined in
Section 22(e)(3) of the Code), the Optionee may exercise his or her Option, but
only within twelve (12) months following the date of such termination, and only
to the extent that the Optionee was entitled to exercise it on the date of such
termination (but in no event later than the expiration of its ten (10) year
term). To the extent that the Optionee was not entitled to exercise an Option
on the date of termination, or if he or she does not exercise such Option (to
the extent otherwise so entitled) within the time specified herein, the Option
shall terminate.
(d) Death of Optionee. In the event of an Optionee's death, the
-----------------
Optionee's estate or a person who acquired the right to exercise the Option by
bequest or inheritance may exercise the Option, but only within twelve (12)
months following the date of death, and only to the extent that the Optionee was
entitled to exercise it on the date of death (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was not
entitled to exercise an Option on the date of death, and to the extent that the
Optionee's estate or a person who acquired the right to exercise such Option
does not exercise such Option (to the extent otherwise so entitled) within the
time specified herein, the Option shall terminate.
9. Non-Transferability of Options. The Option may not be sold, pledged,
------------------------------
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
10. Adjustments Upon Changes in Capitalization and Change of Control.
----------------------------------------------------------------
(a) Changes in Capitalization.
-------------------------
(i) In the event that the outstanding Shares are changed by
reason of a reorganization, merger, consolidation, recapitalization,
reclassification, stock split-up, combination or exchange of shares and the like
(not including the issuance of Common Stock on the conversion of other
securities of the Company which are outstanding on the date of grant and which
are convertible into Common Stock) or dividends payable in Shares, an equitable
adjustment shall be made by the Committee in the aggregate number of shares
available under the Plan and in the number of Shares and price per Share subject
to outstanding Options. Unless the Committee makes other provisions for the
equitable settlement of outstanding options, if the Company shall be
reorganized, consolidated, or merged with another corporation, or if all or
substantially all of the assets of the Company shall be sold or exchanged, an
Optionee shall at the time of issuance of the stock under such corporate event
be entitled to receive upon the exercise of his or her Option the same number
and kind of shares of stock or the same amount of property, cash or securities
as he or she would have been entitled to receive upon the occurrence of any such
corporate event as if he or she had been, immediately prior to such event, the
holder of the number of shares covered by his or her Option.
(ii) Any adjustment under this Section 10 in the number of Shares
subject to Options shall apply proportionately to only the unexercised portion
of any Option granted here-
-6-
<PAGE>
under. If fractions of a Share would result from any such adjustment, the
adjustment shall be revised to the next lower whole number of shares.
(iii) The Committee shall have authority to determine the
adjustments to be made under this Section, and any such determination by the
Committee shall be final, binding and conclusive.
(b) Change of Control. In the event of a Change of Control, Options
-----------------
granted pursuant to the Plan and held by Optionees who are members of the Board
of Directors at the time of a Change of Control shall become immediately
exercisable in full. In the event of a Change of Control as defined below, the
Committee may take whatever action it deems necessary or desirable with respect
to the Options outstanding, including, without limitation, accelerating the
expiration or termination date in the respective Option Documents to a date no
earlier than thirty (30) days after notice of such acceleration is given to the
Optionees.
A "Change of Control" shall be deemed to have occurred upon the
earliest to occur of the following events: (i) the date the stockholders of the
Company (or the Board of Directors, if stockholder action is not required)
approve a plan or other arrangement pursuant to which the Company will be
dissolved or liquidated, or (ii) the date the stockholders of the Company (or
the Board of Directors, if stockholder action is not required) approve a
definitive agreement to sell or otherwise dispose of substantially all of the
assets of the Company, or (iii) the date the stockholders of the Company (or the
Board of Directors, if stockholder action is not required) and the stock
holders of the other constituent corporation (or its board of directors if
stockholder action is not required) have approved a definitive agreement to
merge or consolidate the Company with or into such other corporation, other
than, in either case, a merger or consolidation of the Company in which holders
of shares of the Company's Common Stock immediately prior to the merger or
consolidation will have at least a majority of the ownership of common stock of
the surviving corporation (and, if one class of common stock is not the only
class of voting securities entitled to vote on the election of directors of the
surviving corporation, a majority of the voting power of the surviving
corporation's voting securities) immediately after the merger or consolidation,
which common stock (and, if applicable, voting securities) is to be held in the
same proportion as such holders' ownership of Common Stock of the Company
immediately before the merger or consolidation, or (iv) the date any entity,
person or group, within the meaning of Section 13(d)(3) or Section 14(d)(2) of
the Securities Exchange Act of 1934, as amended, other than the Company or any
of its subsidiaries or any employee benefit plan (or related trust) sponsored or
maintained by the Company or any of its subsidiaries, or any person who does not
conduct any active trade or business shall have become the beneficial owner of,
or shall have obtained voting control over, more than fifty percent (50%) of the
outstanding shares of the Company's Common Stock, or (v) the date that fewer
than a majority of the Board of Directors are Incumbent Directors. "Incumbent
Directors" shall mean directors who either (A) are directors of the Company as
of the effective date of this Plan, or (B) are elected, or nominated for
election to the Board of Directors with the affirmative votes of at least a
majority of those directors whose election or nomination was not in connection
with any transaction described in subsections (i) to (iv) or in connection with
an actual or threatened proxy contest relating to the election of directors of
the Company.
-7-
<PAGE>
11. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend, or discontinue the Plan, but no amendment, alteration,
suspension, or discontinuation shall be made which would impair the rights of
any Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with any applicable
law, regulation or stock exchange rule, the Company shall obtain stockholder
approval of any Plan amendment in such a manner and to such a degree as
required.
(b) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.
12. Time of Granting Options. The date of grant of an Option shall, for
------------------------
all purposes, be the date determined in accordance with Section 4 hereof.
13. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
14. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
15. Option Agreement. Options shall be evidenced by written option
----------------
agreements in such form as the Board shall approve.
16. Stockholder Approval. The Plan shall be subject to approval by the
--------------------
stockholders of the Company within twelve (12) months after the date the Plan is
approved by the Board. Such
-8-
<PAGE>
stockholder approval shall be obtained in the degree and manner required under
applicable state and federal law and any stock exchange rules.
-9-
<PAGE>
EXHIBIT 10.20
GENVEC, INC.
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made as of the 22nd
day of April, 1998 by and among GenVec, Inc., a Delaware corporation (the
"Company") and the stockholders set forth on Schedule 1 (the "Class A and B
----------
Purchasers"), the stockholders set forth on Schedule 2 (the "Additional Class B
----------
Purchasers"), each stockholder set forth on Schedule 3 if such stockholder
----------
executes this Agreement (the "Theragen Common Purchasers"), each stockholder set
forth on Schedule 4 if such stockholder executes this Agreement (the "Theragen
----------
Preferred Purchasers"), and together with the Theragen Common Purchasers, the
"Theragen Purchasers"), the stockholders set forth on Schedule 5 (the "Class C
----------
Purchasers"), the stockholders set forth on Schedule 6 (the "Second Class C
----------
Purchasers"), SCIOS, Inc. ("SCIOS"), the Warner-Lambert Company ("Warner-
Lambert") and Ronald G. Crystal, M.D. ("Crystal").
RECITALS
--------
A. The Company and the Class A and B Purchasers are parties to the
Amended and Restated Preferred Stock Purchase Agreement, dated as of May 19,
1993, as amended by Amendment No. 1, dated as of November 17, 1994 and as
further amended by the Amendment and Waiver Agreement, dated as of September 19,
1995 and Amendment No. 1, dated October 3, 1997 (the "Class A and B Agreement")
pursuant to which the Class A and B Purchasers were granted certain registration
rights.
B. The Company and each of the Class A and B Purchasers have agreed
to amend the Class A and B Agreement in the manner set forth herein.
C. The Company and the Additional Class B Purchasers are parties to
the Preferred Stock Purchase Agreement, dated as of May 26, 1993, as amended by
Amendment No. 1, dated as of November 17, 1994 and as further amended by the
Amendment and Waiver Agreement, dated as of September 19, 1995 and Amendment No.
1, dated October 3, 1997 (the "Class B Agreement") pursuant to which the
Additional Class B Purchasers were granted certain registration rights.
D. The Company and each of the Additional Class B Purchasers have
agreed to amend the Class B Agreement in the manner set forth herein.
E. The Company and the Theragen Purchasers are parties to the
Agreement and Plan of Merger, dated as of June 23, 1994, as amended by the
Closing Agreement, dated as of August 4, 1994 (the "Theragen Agreement")
pursuant to which the Theragen Purchasers were granted certain registration
rights.
<PAGE>
F. Pursuant to Section 10.01 of the Theragen Agreement, such
registration rights were terminated as of June 23, 1996.
G. The Company desires to offer the Theragen Purchasers the
opportunity to receive the registration rights set forth herein.
H. The Company and the Class C Purchasers are parties to the Class C
Preferred Stock Purchase Agreement, dated as of November 17, 1994, as amended by
the Amendment and Waiver Agreement, dated as of September 19, 1995 and Amendment
No. 1, dated October 3, 1997 (the "Class C Agreement") pursuant to which the
Class C Purchasers were granted certain registration rights.
I. The Company and all of the Class C Purchasers have agreed to
amend the Class C Agreement in the manner set forth herein.
J. The Company and the Second Class C Purchasers are parties to the
Second Class C Stock Purchase Agreement, dated as of September 19, 1995, as
amended by Amendment No. 1, dated October 3, 1997 (the "Second Class C
Agreement") pursuant to which the Second Class C Purchasers were granted certain
registration rights.
K. The Company and a majority of the Second Class C Purchasers have
agreed to amend the Second Class C Agreement in the manner set forth herein.
L. The Company and SCIOS are parties to the Warrant Agreement, dated
as of May 31, 1996 (the "SCIOS Agreement") pursuant to which SCIOS was granted
certain registration rights.
M. The Company and SCIOS have agreed to amend the SCIOS Agreement in
the manner set forth herein.
N. The Company and Warner-Lambert are parties to the Stock Purchase
Agreement, dated as of July 21, 1997 (the "Warner-Lambert Agreement") pursuant
to which Warner-Lambert was granted certain registration right.
O. The Company and Warner-Lambert have agreed to amend the Warner-
Lambert Agreement in the manner set forth herein.
P. The Company and Crystal are parties to the Consulting Agreement,
dated as of March 31, 1993, as amended by Option Agreement and Amendment No. 1
and Waiver, dated as of September 18, 1995 and as further amended by the letter
dated August 19, 1997 (the "Crystal Agreement") pursuant to which Crystal was
granted certain registration rights.
Q. The Company and Crystal have agreed to amend the Crystal
Agreement in the manner set forth herein.
-2-
<PAGE>
NOW THEREFORE, the parties agree as follows:
SECTION 1
TERMINATIONS
1.1 CLASS A AND B AGREEMENT. In consideration for the rights granted in
-----------------------
this Agreement, the Class A and B Purchasers agree that Section 4.2 and Section
8 of the Class A and B Agreement (including all rights and obligations under
such sections) are hereby terminated and of no further force and effect. All
other sections and portions of the Class A and B Agreement, and all other rights
granted to, and all obligations of, the parties under the Class A and B
Agreement shall remain in full force and effect.
1.2 CLASS B AGREEMENT. In consideration for the rights granted in this
-----------------
Agreement, the Additional Class B Purchasers agree that Section 4.2 and Section
8 of the Class B Agreement (including all rights and obligations under such
sections) are hereby terminated and of no further force and effect. All other
sections and portions of the Class B Agreement, and all other rights granted to,
and all obligations of, the parties under the Class B Agreement shall remain in
full force and effect.
1.3 CLASS C AGREEMENT. In consideration for the rights granted herein,
-----------------
the Class C Purchasers agree that Section 4.2 and Section 8 of the Class C
Agreement (including all rights and obligations under such sections) are hereby
terminated and of no further force and effect. All other sections and portions
of the Class C Agreement, and all other rights granted to, and all obligations
of, the parties under the Class C Agreement shall remain in full force and
effect.
1.4 SECOND CLASS C AGREEMENT. In consideration for the rights granted
------------------------
herein, the Second Class C Purchasers agree that Section 4.2 and Section 8 of
the Second Class C Agreement (including all rights and obligations under such
sections) are hereby terminated and of no further force and effect. All other
sections and portions of the Second Class C Agreement, and all other rights
granted to, and all obligations of, the parties under the Second Class C
Agreement shall remain in full force and effect.
1.5 SCIOS AGREEMENT. In consideration for the rights granted herein,
---------------
SCIOS agrees that Section 14(b), Section 15 and Section 16 of the SCIOS
Agreement (including all rights and obligations under such sections) are hereby
terminated and of no further force and effect. All other sections and portions
of the SCIOS Agreement (including without limitation, Section 14(c)) and all
rights granted to, and all obligations of, the parties under the SCIOS Agreement
shall remain in full force and effect.
1.6 WARNER-LAMBERT AGREEMENT. In consideration for the rights granted
------------------------
herein, Warner-Lambert agrees that Section 8 of the Warner-Lambert Agreement
(including all rights and obligations under such section) is hereby terminated
and of no further force and effect. All other sections and portions of the
Warner-Lambert Agreement (including without limitation, Section 7), and all
rights granted to, and all obligations of the parties under the Warner-Lambert
Agreement shall remain in full force and effect.
-3-
<PAGE>
1.7 CRYSTAL AGREEMENT. In consideration for the rights granted herein,
-----------------
Crystal agrees that as of the date hereof Section 12 of the Crystal Agreement
(including all rights and obligations under such section) is terminated and of
no further force and effect.
SECTION 2
REGISTRATION RIGHTS
2.1 CERTAIN DEFINITIONS. As used in this Agreement, the following terms
-------------------
shall have the following respective meanings:
"Class A and B Conversion Stock" shall mean the Common Stock issued or
------------------------------
issuable upon conversion of the Class A Preferred Stock issued pursuant to the
Class A and B Agreement (the "Class A Preferred") and the Class B Preferred
Stock issued pursuant to the Class A and B Agreement and the Class B Agreement
(the "Financing Class B Preferred").
"Class A and B Holder" shall mean any Class A and B Purchaser or any
--------------------
Additional Class B Purchaser holding Class A and B Registrable Securities and
any person holding Class A and B Registrable Securities to whom the rights under
this Section 2 have been transferred in accordance with Section 2.13 of this
Agreement.
"Class A and B Registrable Securities" shall mean (i) the Class A and
------------------------------------
B Conversion Stock; and (ii) any Common Stock of the Company issued or issuable
in respect of the Class A Preferred and Financing Class B Preferred or other
securities issued or issuable pursuant to the conversion of the Class A
Preferred and the Financing Class B Preferred, upon any stock split, stock
dividend, recapitalization, merger, consolidation or similar event (a
"Recapitalization") or any Common Stock otherwise issued or issuable with
respect to the Class A Preferred and Financing Class B Preferred, provided,
however, that shares of Common Stock or other securities shall no longer be
treated as Class A and B Registrable Securities after they have been sold to or
through a broker or dealer or underwriter in a public distribution or a public
securities transaction, whether in a registered offering, pursuant to Rule 144
or otherwise.
"Class C Conversion Stock" shall mean the Common Stock issued or
------------------------
issuable upon conversion of the Class C Preferred Stock issued pursuant to the
Class C Agreement and the Second Class C Agreement (the "Class C Preferred").
"Class C Holder" shall mean any Class C Purchaser or any Second Class
--------------
C Purchaser holding Class C Registrable Securities and any person holding Class
C Registrable Securities to whom the rights under this Section 2 have been
transferred in accordance with Section 2.12 of this Agreement.
"Class C Registrable Securities" shall mean (i) the Class C Conversion
------------------------------
Stock; and (ii) any Common Stock of the Company issued or issuable in respect of
the Class C Conversion Stock or other securities issued or issuable pursuant to
the conversion of the Class C Preferred, upon any
-4-
<PAGE>
Recapitalization or any Common Stock otherwise issued or issuable with respect
to the Class C Preferred, provided, however, that shares of Common Stock or
other securities shall no longer be treated as Class C Registrable Securities
after they have been sold to or through a broker or dealer or underwriter in a
public distribution or a public securities transaction, whether in a registered
offering, pursuant to Rule 144 or otherwise.
"Commission" shall mean the Securities and Exchange Commission or any
----------
other federal agency at the time administering the Securities Act.
"Conversion Stock" shall mean the Class A and B Conversion Stock, the
----------------
Theragen Conversion Stock, the Class C Conversion Stock, the SCIOS Conversion
Stock, the Warner-Lambert Conversion Stock and the Crystal Conversion Stock.
"Crystal Conversion Stock" shall mean the Common Stock issued or
------------------------
issuable upon vesting of the Restricted Stock (as defined int he Crystal
Agreement) and upon exercise of the Option (as defined in the Crystal
Agreement).
"Crystal Holder" shall mean Crystal (so long as he holds any Crystal
--------------
Registrable Securities) and any person holding Crystal Registrable Securities to
whom rights under this Section 2 have been transferred in accordance with
Section 2.13 of this Agreement.
"Crystal Registrable Securities" shall mean (i) the Crystal Conversion
------------------------------
Stock; and (ii) any Common Stock of the Company issued or issuable in respect of
the Crystal Conversion Stock or other securities issued or issuable pursuant to
the vesting or conversion of the Restricted Stock or Option, upon any
Recapitalization or any Common Stock otherwise issued or issuable with respect
to the Restricted Stock or Option, provided, however, that shares of Common
Stock or other securities shall no longer be treated as Crystal Registrable
Securities after they have been sold to or through a broker or dealer or
underwriter in a public distribution or a public securities transaction, whether
in a registered offering, pursuant to Rule 144 or otherwise.
"Demand Holder" shall mean any Class A and B Holder, Theragen
-------------
Preferred Holder or Class C Holder.
"Demand Registrable Securities" shall mean the Class A and B
-----------------------------
Registrable Securities, Theragen Preferred Registrable Securities and the Class
C Registrable Securities.
"Holder" shall mean any Class A and B Holder, Theragen Holder, Class C
------
Holder, SCIOS Holder, Warner-Lambert Holder or Crystal Holder.
"Initiating Holders" shall mean (i) Class A and B Holders of not less
------------------
than 50% of the Class A and B Registrable Securities; (ii) Theragen Preferred
Holders of greater than 50% of the Theragen Preferred Registrable Securities; or
(iii) Class C Holders of not less than 50% of the Class C Registrable
Securities.
-5-
<PAGE>
"Preferred" means Class A Preferred, Class B Preferred, Class C
---------
Preferred and the Warner-Lambert Preferred.
"Purchasers" means the Class A and B Purchasers, the Additional Class
----------
B Purchasers, the Theragen Purchasers, the Class C Purchasers, the Second Class
C Purchasers, SCIOS, Warner-Lambert and Crystal.
"Registrable Securities" means the Class A and B Registrable
----------------------
Securities, the Theragen Registrable Securities, the Class C Registrable
Securities, the SCIOS Registrable Securities, the Warner-Lambert Registrable
Securities and the Crystal Registerable Securities.
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 the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses, except as otherwise
---------------------
stated below, incurred by the Company in complying with Sections 2.5, 2.6 and
2.7, including, without limitation, all registration, qualification and filing
fees, printing expenses, escrow fees, fees and disbursements of counsel for the
Company, blue sky fees and expenses, the expense of any special audits incident
to or required by any such registration (but excluding the compensation of
regular employees of the Company which shall be paid in any event by the
Company) and the reasonable fees and expenses of one counsel for all Demand
Holders in the event of the exercise of any demand registration provided for in
Section 2.5.
"Restricted Securities" shall mean the securities of the Company
---------------------
required to bear the legend set forth in Section 2.3.
"S-3 Holder" shall mean the Class A and B Holders, the Theragen
----------
Preferred Holders, the Class C Holders, the SCIOS Holders and the Warner-Lambert
Holders.
"S-3 Initiating Holders" shall mean (i) Class A and B Holders of
----------------------
greater than 50% of the Class A and B Registrable Securities, (ii) Theragen
Preferred Holders of greater than 50% of the Theragen Preferred Registrable
Securities, (iii) Class C Holders of greater than 50% of the Class C Registrable
Securities, (iv) SCIOS Holders of greater than 80% of the SCIOS Registrable
Securities or (v) Warner-Lambert Holders of greater than 80% of the Warner-
Lambert Registrable Securities.
"S-3 Registrable Securities" shall mean Class A and B Registrable
--------------------------
Securities, Theragen Preferred Registrable Securities, Class C Registrable
Securities, SCIOS Registrable Securities and Warner-Lambert Registrable
Securities.
"SCIOS Conversion Stock" shall mean the Common Stock issued or
----------------------
issuable upon exercise of the warrant granted pursuant to the SCIOS Agreement.
-6-
<PAGE>
"SCIOS Holder" shall mean SCIOS (so long as it holds any SCIOS
------------
Registrable Securities) and any person holding SCIOS Registrable Securities to
whom the rights under this Section 2 have been transferred in accordance with
Section 2.13 of this Agreement.
"SCIOS Registrable Securities" shall mean (i) the SCIOS Conversion
----------------------------
Stock; and (ii) any Common Stock of the Company issued or issuable in respect of
the SCIOS Conversion Stock or other securities issued or issuable pursuant to
the exercise of the warrant granted pursuant to the SCIOS Agreement, upon any
Recapitalization or Common Stock otherwise issued or issuable with respect to
the warrant granted pursuant to the SCIOS Agreement, provided, however, that
shares of Common Stock or other securities shall no longer be treated as SCIOS
Registrable Securities after they have been sold to or through a broker or
dealer or underwriter in a public distribution or a public securities
transaction, whether in a registered offering, pursuant to Rule 144 or
otherwise.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
--------------
any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts, selling
----------------
commissions and stock transfer taxes applicable to the securities registered by
the Holders and, except as set forth above, all reasonable fees and
disbursements of counsel for any Holder.
"Theragen Common Conversion Stock" shall mean the Common Stock issued
--------------------------------
pursuant the Theragen Agreement.
"Theragen Common Holder" shall mean any Theragen Common Purchaser
----------------------
holding Theragen Common Registrable Securities and any person holding Theragen
Common Registrable Securities to whom the rights under this Section 2 have been
transferred in accordance with Section 2.13 of this Agreement.
"Theragen Common Registrable Securities" shall mean (i) the Theragen
--------------------------------------
Common Conversion Stock; and (ii) any Common Stock of the Company issued or
issuable in respect of the Theragen Common Conversion Stock or upon any
Recapitalization, provided, however, that shares of Common Stock or other
securities shall no longer be treated as Theragen Common Registrable Securities
after they have been sold to or through a broker or dealer or underwriter in a
public distribution or a public securities transaction, whether in a registered
offering, pursuant to Rule 144 or otherwise.
"Theragen Conversion Stock" shall mean the Theragen Common Conversion
-------------------------
Stock and the Theragen Preferred Conversion Stock.
"Theragen Holder" shall mean the Theragen Common Holder and the
---------------
Theragen Preferred Holder.
-7-
<PAGE>
"Theragen Preferred Conversion Stock" shall mean the Common Stock
-----------------------------------
issued or issuable upon conversion of the Class B Preferred Stock issued
pursuant the Theragen Agreement (the "Theragen Preferred," and together with the
Financing Class B Preferred, the "Class B Preferred").
"Theragen Preferred Holder" shall mean any Theragen Preferred
-------------------------
Purchaser holding Theragen Preferred Registrable Securities and any person
holding Theragen Preferred Registrable Securities to whom the rights under this
Section 2 have been transferred in accordance with Section 2.13 of this
Agreement.
"Theragen Preferred Registrable Securities" shall mean (i) the
-----------------------------------------
Theragen Preferred Conversion Stock; and (ii) any Common Stock of the Company
issued or issuable in respect of the Theragen Preferred Conversion Stock or
other securities issued or issuable pursuant to the conversion of the Theragen
Preferred, upon any Recapitalization or any Common Stock otherwise issued or
issuable with respect to the Theragen Preferred, provided, however, that shares
of Common Stock or other securities shall no longer be treated as Theragen
Preferred Registrable Securities after they have been sold to or through a
broker or dealer or underwriter in a public distribution or a public securities
transaction, whether in a registered offering, pursuant to Rule 144 or
otherwise.
"Theragen Registrable Securities" shall mean the Theragen Common
-------------------------------
Registrable Securities and the Theragen Preferred Registrable Securities.
"Warner-Lambert Conversion Stock" shall mean the Common Stock issued
-------------------------------
or issuable pursuant to and the Common Stock issued or issuable upon conversion
of the preferred stock of the Company issued pursuant to the Warner-Lambert
Agreement (the "Warner-Lambert Preferred").
"Warner-Lambert Holder" shall mean Warner-Lambert (so long as it holds
---------------------
any Warner-Lambert Registrable Securities) and any person holding Warner-Lambert
Registrable Securities to whom the rights under this Section 2 have been
transferred in accordance with Section 2.13 of this Agreement.
"Warner-Lambert Registrable Securities" shall mean (i) the Warner-
-------------------------------------
Lambert Conversion Stock; and (ii) any Common Stock of the Company issued or
issuable in respect of the Warner-Lambert Conversion Stock or other securities
issued or issuable pursuant to the conversion of the Warner-Lambert Preferred,
upon any Recapitalization or any Common Stock otherwise issued or issuable with
respect to the Warner-Lambert Preferred, provided, however, that shares of
Common Stock or other securities shall no longer be treated as Warner-Lambert
Registrable Securities after they have been sold to or through a broker or
dealer or underwriter in a public distribution or a public securities
transaction, whether in a registered offering, pursuant to Rule 144 or
otherwise.
2.2 RESTRICTIONS ON TRANSFERABILITY. The Preferred and the Conversion
-------------------------------
Stock shall not be sold, assigned, transferred or pledged except upon the
conditions specified in this Section 2, which conditions are intended to ensure
compliance with the provisions of the Securities Act. Each Purchaser will cause
any proposed purchaser, assignee, transferee, or pledgee of the Preferred or
Conversion Stock held by a Purchaser to agree to take and hold such securities
subject to the provisions and upon the conditions specified in this Section 2.
-8-
<PAGE>
2.3 RESTRICTIVE LEGEND. Each certificate representing the Preferred, the
------------------
Conversion Stock and any other securities issued in respect of the Preferred or
the Conversion Stock upon any stock split, stock dividend, recapitalization,
merger, consolidation or similar event, shall (unless otherwise permitted by the
provisions of Section 2.4 below) be stamped or otherwise imprinted with a legend
substantially in the following form (in addition to any legend required under
applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR AN EXEMPTION FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF SAID ACT.
Each Purchaser and Holder consents to the Company making a notation on
its records and giving instructions to any transfer agent of the Preferred or
the Conversion Stock in order to implement the restrictions on transfer
established in this Section 2.3.
2.4 NOTICE OF PROPOSED TRANSFERS. The holder of each certificate
----------------------------
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 2.4. Prior to any proposed sale,
assignment, transfer or pledge of any Restricted Securities (other than (i) a
transfer not involving a change in beneficial ownership or (ii) in transactions
involving the distribution without consideration of Restricted Securities by any
of the Purchasers to any of its partners, or retired partners, or to the estate
of any of its partners or retired partners), unless there is in effect a
registration statement under the Securities Act covering the proposed transfer,
the holder thereof shall give written notice to the Company of such holder's
intention to effect such transfer, sale, assignment or pledge. Each such notice
shall describe the manner and circumstances of the proposed transfer, sale,
assignment or pledge in sufficient detail, and, if requested by the Company,
shall be accompanied, at such holder's expense, by either (i) an unqualified
written opinion of legal counsel who shall be, and whose legal opinion shall be,
reasonably satisfactory to the Company addressed to the Company, to the effect
that the proposed transfer of the Restricted Securities may be effected without
registration under the Securities Act, or (ii) a "no action" letter from the
Commission to the effect that the transfer of such securities without
registration will not result in a recommendation by the staff of the Commission
that action be taken with respect thereto, whereupon the holder of such
Restricted Securities shall be entitled to transfer such Restricted Securities
in accordance with the terms of the notice delivered by the holder to the
Company. It is agreed that the Company will not request an opinion of counsel
for the holder for transactions made in reliance on Rule 144 under the
Securities Act except in unusual circumstances, the existence of which shall be
determined in good faith by the Board of Directors of the Company, and in any
case the Company will not request an opinion of counsel for the holder for
transactions made in reliance on Rule 144(k) under the Securities Act. Each
certificate evidencing the Restricted Securities transferred as above provided
shall bear, except if such transfer is made pursuant to Rule 144, the
appropriate restrictive legend set forth in Section 2.3 above, except that such
certificate shall not bear such restrictive legend if in the opinion of counsel
for such holder and the Company such legend is not required in order to
establish compliance with any provision of the Securities Act.
-9-
<PAGE>
2.5 REQUESTED REGISTRATION.
----------------------
(a) Request for Registration. In case the Company shall receive from
------------------------
Initiating Holders a written request that the Company effect any registration,
qualification or compliance with respect to Demand Registrable Securities on a
form of registration statement other than Form S-3 (or any successor form to
Form S-3), the Company will:
(i) promptly give written notice of the proposed registration,
qualification or compliance to all other Demand Holders; and
(ii) as soon as practicable, use its diligent efforts to effect
such registration, qualification or compliance (including, without limitation,
appropriate qualification under applicable blue sky or other state securities
laws and appropriate compliance with applicable regulations issued under the
Securities Act and any other governmental requirements or regulations) as may be
so requested and as would permit or facilitate the sale and distribution of all
or such portion of such Demand Registrable Securities as are specified in such
request, together with all or such portion of the Demand Registrable Securities
of any Demand Holders joining in such request as are specified in a written
request received by the Company within 20 days after receipt of such written
notice from the Company;
provided, however, that the Company shall not be obligated to take any action to
effect any such registration, qualification or compliance pursuant to this
Section 2.5:
(A) In any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
(B) Prior to (i) December 1, 1998 if the closing of the
initial public offering of the Company's Common Stock (the "IPO") has not
occurred on or prior to such date or (ii) if the closing of the IPO has occurred
on or prior to December 1, 1998, then 180 days after the date of the final
prospectus relating to the IPO;
(C) During the period starting with the date sixty (60)
days prior to the Company's estimated date of filing of, and ending on the date
six (6) months immediately following the effective date of, any registration
statement pertaining to securities of the Company (other than a registration of
securities in a Rule 145 transaction or with respect to an employee benefit
plan), provided that the Company is actively employing in good faith all
reasonable efforts to cause such registration statement to become effective;
(D) Unless the anticipated aggregate offering price, net
of underwriting discounts and commissions, of all Demand Registered Securities
sought to be registered by all Initiating Holders pursuant to this Section 2.5,
would exceed $5,000,000;
-10-
<PAGE>
(E) After the Company has effected three such registrations
pursuant to this subparagraph 1.5(a), and such registrations have been declared
or ordered effective and the securities offered pursuant to such registrations
have been sold;
(F) If the Company shall furnish to the Initiating Holders
a certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors it would be seriously detrimental to
the Company or its stockholders for a registration statement to be filed in the
near future, then the Company's obligation to use its best efforts to register,
qualify or comply under this Section 2.5 shall be deferred for a period not to
exceed 90 days from the date of receipt of written request from the Initiating
Holders, provided, however, that the Company shall not exercise the right to
defer registration granted pursuant to this paragraph (F) more than one time in
any twelve month period.
Subject to the foregoing clauses (A) through (F), the Company shall file a
registration statement covering the Demand Registrable Securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Initiating Holders.
(b) Underwriting. In the event that a registration pursuant to
------------
Section 2.5 is for a registered public offering involving an underwriting, the
Company shall so advise the Demand Holders as part of the notice given pursuant
to Section 2.5(a)(i). In such event, the right of any Demand Holder to
registration pursuant to Section 2.5 shall be conditioned upon such Demand
Holder's participation in the underwriting arrangements required by this Section
2.5, and the inclusion of such Demand Holder's Registrable Securities in the
underwriting to the extent requested shall be limited to the extent provided
herein.
The Company shall (together with all Demand Holders proposing to distribute
their securities through such underwriting) enter into an underwriting agreement
in customary form with the managing underwriter selected for such underwriting
by a majority in interest of the Initiating Holders, but subject to the
Company's reasonable approval. Notwithstanding any other provision of this
Section 2.5, if the managing underwriter advises the Initiating Holders in
writing that marketing factors require a limitation of the number of shares to
be underwritten, then (i) first the securities other than the Demand Registrable
Securities and (ii) next the securities requested to be registered by the
Company, shall be excluded from such registration. If a limitation of the
number of shares is thereafter still required, the Initiating Holders shall so
advise all Demand Holders of Registrable Securities and the number of shares of
Registrable Securities that may be included in the registration and underwriting
shall be allocated among all Demand Holders thereof in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities held by such
Demand Holders at the time of filing the registration statement. No Registrable
Securities excluded from the underwriting by reason of the underwriter's
marketing limitation shall be included in such registration. To facilitate the
allocation of shares in accordance with the above provisions, the Company or the
underwriters may round the number of shares allocated to any Demand Holder to
the nearest 100 shares.
If any Demand Holder of Registrable Securities disapproves of the terms of
the underwriting, such person may elect to withdraw therefrom by written notice
to the Company, the managing
-11-
<PAGE>
underwriter and the Initiating Holders. Any securities excluded or withdrawn
from such underwriting, in the event that such underwriting represents the
initial underwritten public offering of the Company's securities, shall be
withdrawn from such registration, and shall not be transferred in a public
distribution prior to 180 days after the effective date of the registration
statement relating thereto, or such other shorter period of time as the
underwriters may require. If by the withdrawal of such Registrable Securities a
greater number of Registrable Securities held by other Demand Holders may be
included in such registration (up to the maximum of any limitation imposed by
the underwriters), then the Company shall offer to all Demand Holders who have
included Registrable Securities in the registration the right to include
additional Registrable Securities calculated in the same manner used in this
Section 2.5(b) in determining the allocation of shares to be sold when subject
to an underwriter limitation.
2.6 COMPANY REGISTRATION.
--------------------
(a) Notice of Registration. If at any time or from time to time the
----------------------
Company shall determine to register any of its securities, either for its own
account or the account of a security holder or holders, other than (i) a
registration relating solely to employee benefit plans, or (ii) a registration
relating solely to a Commission Rule 145 transaction, the Company will:
(i) give to each Holder at least 30 days prior written
notice thereof; and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made within 20 days after receipt of such written notice from the
Company, by any Holder;
provided, however, that the Company shall not be obligated to take such actions
with respect to any SCIOS Holder if such registration is to be effected on any
form other than a registration statement or Form S-3 (or any successor form to
Form S-3)
(b) Underwriting. If the registration of which the Company gives
------------
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 2.6(a)(i). In such event the right of any Holder to
registration pursuant to Section 2.6 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of Registrable Securities
in the underwriting to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company and the other holders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
managing underwriter selected for such underwriting by the Company.
Notwithstanding any other provision of this Section 2.6, if the managing
underwriter determines that marketing factors require a limitation of the number
of shares to be underwritten, the managing underwriter may limit (or exclude
entirely) the shares held by other holders of registration rights, and following
exclusion of such shares, the Registrable Securities to be included in such
registration; provided, however, in no event shall any shares being sold by a
stockholder exercising a demand registration right similar to that granted in
Section 2.5 be excluded from such
-12-
<PAGE>
offering in a manner inconsistent with provisions similar to Section 2.5(b). The
Company shall advise all Holders and other holders exercising their registration
rights to distribute their securities through such underwriting of any such
limitation, and shall first limit (or exclude entirely) the shares held by
holders of registration rights (other than the Holders), and following exclusion
of such shares, the number of shares of Registrable Securities that may be
included in the registration and underwriting shall be allocated among all
Holders exercising their registration rights in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities held by such
Holders. If any Holder or holder disapproves of the terms of any such
underwriting, it may elect to withdraw therefrom by written notice to the
Company and the managing underwriter. Any securities excluded or withdrawn from
such underwriting, in the event that such underwriting represents the initial
underwritten public offering of the Company's securities, shall be withdrawn
from such registration, and shall not be transferred in a public distribution
prior to 180 days after the effective date of the registration statement
relating thereto, or such other shorter period of time as the underwriters may
require.
(c) Right to Terminate Registration. The Company shall have the right
-------------------------------
to terminate or withdraw any registration initiated by it under this Section 2.6
prior to the effectiveness of such registration whether or not any Holder has
elected to include securities in such registration.
2.7 REGISTRATION ON FORM S-3.
------------------------
(a) If any S-3 Initiating Holder or Holders requests that the Company
file a registration statement on Form S-3 (or any successor form to Form S-3)
for a public offering of shares of the S-3 Registrable Securities, and the
Company is a registrant entitled to use Form S-3 to register the S-3 Registrable
Securities for such an offering, the Company shall: (i) promptly give written
notice of the proposed registration to all other S-3 Holders of Registrable
Securities and (ii) use its best efforts to cause, as soon as practicable, all
S-3 Registrable Securities to be registered as may be so requested for the
offering on such form and to cause such S-3 Registrable Securities to be
qualified in such jurisdictions as the S-3 Initiating Holder or other S-3
Holders may reasonably request. The substantive provisions of Section 2.5(b)
shall be applicable to each registration initiated under this Section 2.7.
(b) Notwithstanding the foregoing, the Company shall not be obligated
to take any action pursuant to this Section 2.7: (i) in any particular
jurisdiction in which the Company would be required to execute a general consent
to service of process in effecting such registration, qualification or
compliance unless the Company is already subject to service in such jurisdiction
and except as may be required by the Securities Act; or (ii) if the Company
shall furnish to such S-3 Initiating Holders a certificate signed by the
President of the Company stating that in the good faith judgment of the Board of
Directors it would be seriously detrimental to the Company or its stockholders
for registration statements to be filed in the near future, then the Company's
obligation to use its best efforts to file a registration statement shall be
deferred for a period not to exceed 90 days from the receipt of the request to
file such registration by such S-3 Initiating Holders, provided, however, that
the Company shall not exercise the right to defer registration granted by this
subparagraph (b)(ii) more than once in any twelve month period.
-13-
<PAGE>
(c) Notwithstanding the foregoing, (i) this Section 2.7 shall not
apply to any SCIOS Holder, and no SCIOS Holder shall have any right or
obligation under this Section 2.7 until June 1, 1999 and (ii) the Company shall
not be required to include SCIOS Registration Securities in more than one (1)
registration pursuant to Section 2.7.
(d) Notwithstanding the foregoing, (i) this Section 2.7 shall apply
to any Warner-Lambert Holder, and Warner-Lambert Holder shall have rights and
obligations pursuant to this Section 2.7, only if such Warner-Lambert Holder is
unable to sell the Warner-Lambert Registrable Securities within eighteen (18)
months after the end of the Restriction Period (as defined in the Warner-Lambert
Agreement) pursuant to Rules 144(k) (or a successor rule) under the Securities
Act or pursuant to Section 2.6, (ii) the Company shall not be required to
include Warner-Lambert Registrable Securities in more than one (1) registration
pursuant to this Section 2.7, and (iii) the Company shall not be required to
include any Warner-Lambert Registrable Securities in any registration pursuant
to this Section 2.7 unless the expected net proceeds to Warner-Lambert exceeds
$5,000,000.
2.8 EXPENSES OF REGISTRATION.
------------------------
(a) All Registration Expenses incurred in connection with all
registrations pursuant to Sections 2.5 and 2.6, shall be borne by the Company.
Unless otherwise stated, all Selling Expenses relating to securities registered
on behalf of the Holders and all other Registration Expenses shall be borne by
the Holders of such securities pro rata on the basis of the number of shares so
registered.
(b) All Registration Expenses and Selling Expenses incurred in
connection with a registration pursuant to Section 2.7 shall be borne pro rata
by the Holder or Holders requesting the registration on Form S-3 according to
the number of Registrable Securities included in such registration.
2.9 REGISTRATION PROCEDURES. The Company will keep each Holder whose
-----------------------
Registrable Securities are included in any registration pursuant to this
Agreement advised as to the initiation and completion of such registration. At
its expense the Company will with all deliberate speed:
(a) Prepare and file with the Commission a registration statement
with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for at least one hundred
eighty (180) days or until the distribution described in the Registration
Statement has been completed;
(b) Furnish to the Holders participating in such registration and to
the underwriters of the securities being registered such reasonable number of
copies of the registration statement, preliminary prospectus, final prospectus
and such other documents as such underwriters may reasonably request in order to
facilitate the public offering of such securities;
(c) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statements 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;
-14-
<PAGE>
(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; and
(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 of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
2.10 INDEMNIFICATION
---------------
(a) The Company will indemnify each Holder, each of its officers and
directors and partners, and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, with respect to which registration,
qualification or compliance has been effected pursuant to the Agreement, and
each underwriter, if any, and each person who controls any underwriter within
the meaning of Section 15 of the Securities Act, against all expenses, claims,
losses, damages or liabilities (or actions in respect thereof), including any of
the foregoing incurred in settlement of any litigation, commenced or threatened,
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any registration statement, prospectus, offering
circular or other document, or any amendment or supplement thereto, incident to
any such registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, or any violation by the Company of the
Securities Act or any rule or regulation promulgated under the Securities Act
applicable to the Company in connection with any such registration,
qualification or compliance, and the Company will reimburse each such Holder,
each of its officers and directors, and each person controlling such Holder,
each such underwriter and each person who controls any such underwriter, for any
legal and any other expenses reasonably incurred in connection with
investigating, preparing or defending any such claim, loss, damage, liability or
action, provided that the Company will not be liable in any such case to the
extent that any such claim, loss, damage, liability or expense arises out of or
is based on any untrue statement or omission or alleged untrue statement or
omission, made in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by such Holder,
controlling person or underwriter and stated to be specifically for use therein.
(b) Each Holder will, if Registrable Securities held by such Holder
are included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers, each underwriter, if any, of the Company's securities covered by such
a registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the Securities Act, and each
other such Holder, each of its officers, directors and partners and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such
-15-
<PAGE>
registration statement, prospectus, offering circular or other document, or any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse the Company, such Holders, such directors, officers, partners,
persons, underwriters or control persons for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder and stated to be specifically for use therein. In
no event shall any indemnity under this Section 2.10 exceed the proceeds from
the offering received by such Holder.
(c) Each party entitled to indemnification under this Section 2.10
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Section 2.10 unless the failure to give such notice
is materially prejudicial to an Indemnifying Party's ability to defend such
action and provided further, that the Indemnifying Party shall not assume the
defense for matters as to which there is a conflict of interest or separate and
different defenses. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. No Indemnifying Party shall be liable for indemnification hereunder
with respect to any settlement or consent to judgment, in connection with any
claim or litigation to which these indemnification provisions apply, that has
been entered into without the prior consent of the Indemnifying Party (which
consent will not be unreasonably withheld).
(d) If the indemnification provided for in this Section 2.10 is held
by a court of competent jurisdiction to be unavailable to an Indemnified Party
with respect to any losses, claims, damages or liabilities referred to herein,
the Indemnifying Party, in lieu of indemnifying such Indemnified Party
thereunder, shall to the extent permitted by applicable law contribute to the
amount paid or payable by such Indemnified Party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party on the one hand and of the Indemnified
Party on the other in connection with the untrue statement or omission or
alleged untrue statement or omission that resulted in such loss, claim, damage
or liability, as well as any other relevant equitable considerations. The
relative fault of the Indemnifying Party and of the Indemnified Party shall be
determined by a court of law by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the Indemnifying Party or by
the Indemnified Party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission;
-16-
<PAGE>
provided, that in no event shall any contribution by a Holder hereunder exceed
the proceeds from the offering received by such Holder.
2.11 Information by Holder. The Holder or Holders of Registrable
---------------------
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders, the Registrable Securities held by
it or them and the distribution proposed by such Holder or Holders as the
Company may request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Section 2.11.
2.12 Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission that may at any time permit the
sale of the Restricted 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 use its diligent efforts to:
(i) 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 that the Company becomes subject to the reporting
requirements of the Securities Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act");
(ii) File with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements); and
(iii) So long as a Holder owns any Restricted Securities, furnish to
the Holder forthwith upon request a written statement by the Company as to its
compliance with the reporting requirements of Rule 144 (at any time after ninety
(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 Exchange Act (at any time after it has become subject to
such reporting requirements), a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents of the Company and
other information in the possession of or reasonably obtainable by 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.
2.13 TRANSFER OF REGISTRATION RIGHTS. The rights to cause the Company to
-------------------------------
register securities granted Purchasers under Sections 2.5, 2.6 and 2.7 may be
assigned (i) in connection with transactions involving the distribution without
consideration of Registrable Securities by any of the Purchasers to any of its
partners or retired partners or the estate of any of its partners or retired
partners, or (ii) to a transferee or assignee reasonably acceptable to the
Company in connection with any transfer or assignment of Registrable Securities
by a Purchaser, provided that (a) such transfer may otherwise be effected in
accordance with applicable securities laws, Sections 2.3 and 2.4 and as to
Warner-Lambert, Section 7 of the Warner-Lambert Agreement and as to SCIOS,
Section 14(c) of the SCIOS Agreement, and (b) such assignee or transferee
acquires at least 100,000 shares of the applicable Conversion Stock (adjusted
for stock splits, stock dividends, stock recombinations and the like after the
date of this Agreement).
-17-
<PAGE>
2.14 STANDOFF AGREEMENT. Each Holder agrees in connection with the
------------------
Company's initial public offering of the Company's securities, (1) not to sell,
make short sale of, loan, grant any options for the purchase of, or otherwise
dispose of any securities of the Company (other than those securities included
in the registration) without the prior written consent of the Investor or the
underwriters managing such initial underwritten public offering of the Company's
securities (the "Managing Underwriter") for one hundred eighty (180) days from
the effective date of such registration, and (2) further agrees to execute any
agreement reflecting (1) above as may be requested by the Managing Underwriter,
provided that the officers and directors of the Company who own stock of the
Company also agree to such restrictions. Each Holder shall cause any proposed
purchaser, assignee, transferee or pledgee of any shares held by such Holder to
agree to take and hold such securities subject to this Section 2.14.
SECTION 3
MISCELLANEOUS
-------------
3.1 GOVERNING LAW. This Agreement shall be governed in all respects by
-------------
the internal laws of the State of Delaware.
3.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
----------------------
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
3.3 ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the full and
---------------------------
entire understanding and agreement and supersedes any existing agreement between
the parties with regard to the subject matter hereof, including without
limitation any understanding or agreement relating to registration set forth in
the Class A and B Agreement, the Class B Agreement, the Theragen Agreement, the
Class C Agreement, the Second Class C Agreement, the SCIOS Agreement, the
Crystal Agreement, Section 8 of the Warner-Lambert Agreement and in Section
14(c) (but excluding the restrictions on transfer and/or legend requirements) of
the SCIOS Agreement. Except as expressly provided herein, neither this
Agreement nor any term hereof may be amended, waived, discharged or terminated
other than by a written instrument signed by the party against whom enforcement
of any such amendment, waiver, discharge or termination is sought; provided,
however, that (i) Demand Holders of sixty-six and two thirds percent (66-2/3%)
of Class A and B Registrable Securities, Theragen Preferred Registrable
Securities and Class C Registrable Securities may, with the Company's written
consent, waive, modify, or amend on behalf of all holders any provision of
Section 2.5, (ii) Holders of sixty-six and two thirds percent (66-2/3%) of the
Registrable Securities may, with the Company's written consent, waive, modify,
or amend on behalf of all holders any provision of Section 2.6, (iii) S-3
Holders of sixty-six and two thirds percent (66-2/3%) of Class A and B
Registrable Securities, Theragen Preferred Registrable Securities, Class C
Registrable Securities and Warner-Lambert Registrable Securities may, with the
Company's written consent, waive, modify, or amend on behalf of all holders any
provision of Section 2.7 (other than Section 2.7(c) and Section 2.7(d)), (iv)
SCIOS may, with the Company's written consent, waive, modify, or amend Section
1.5 and Section 2.7(c), (v) Warner-Lambert may, with the Company's
-18-
<PAGE>
written consent, waive, modify, or amend Section 1.6 and Section 2.7(d), (vi)
the Holders of sixty-six and two thirds percent (66-2/3%) of the Class A
Preferred Stock and Class B Preferred Stock (on an as converted to Common Stock
basis) issued pursuant to the Class A and B Agreement may, with the Company's
written consent, waive, modify, or amend Section 1.1, (vii) the Holders of
sixty-six and two thirds percent (66-2/3%) of the Class B Preferred Stock (on an
as converted to Common Stock basis) issued pursuant to the Class B Agreement
may, with the Company's written consent, waive, modify, or amend Section 1.2,
(viii) the Holders of a majority of the Class C Preferred Stock (on an as
converted to Common Stock basis) issued pursuant to the Class C Agreement may,
with the Company's written consent, waive, modify, or amend Section 1.3, (ix)
the Holders of a majority of the Class C Preferred Stock (on an as converted to
Common Stock basis) issued pursuant to the Second Class C Agreement may, with
the Company's written consent, waive, modify, or amend Section 1.4, (x) the
Holders of a majority of the Crystal Conversion Stock may, with the Company's
written consent, waive, modify, or amend Section 1.7 and (xi) Holders of a
majority of Registrable Securities may, with the Company's written consent,
waive, modify, or amend Section 2 (other than Section 2.5, Section 2.6 and
Section 2.7) and Section 3 (other than Section 3.3(i), (ii), (iii), (iv), (v),
through (x)).
3.4 NOTICES. All notices and other communications required or permitted
-------
hereunder shall be in writing and shall be mailed by registered or certified
mail, postage prepaid, or otherwise delivered by hand or by messenger, addressed
(a) if to a Purchaser, at such address as the Purchaser shall have furnished to
the Company in writing, (b) if to any other Holder at such address as such
Holder shall have furnished the Company in writing, or, until any such Holder so
furnishes an address to the Company, then to and at the address of the last
Holder of such shares who has so furnished an address to the Company, or (c) if
to the Company, at 12111 Parklawn Drive, Rockville, Maryland 20852 addressed to
the attention of the Chief Executive Officer, or at such other address as the
Company shall have furnished to the Purchasers. Each such notice or other
communication shall for all purposes of this Agreement be treated as effective
or having been given when delivered if delivered personally or sent by telegram,
telefax or telex (receipt confirmed), or, if sent by mail, at the earlier of its
receipt or 72 hours after the same has been deposited in a regularly maintained
receptacle for the deposit of the United States mail, addressed and mailed as
described above, or if sent by electronic mail, then one business day following
delivery. Notwithstanding anything in this Agreement to the contrary, a
consent, waiver, modification or amendment delivered by electronic mail shall be
effective.
3.5 DELAYS OR OMISSIONS. Except as expressly provided herein, no delay
-------------------
or omission to exercise any right, power or remedy accruing to any holder of any
Registrable Securities, upon any breach or default of the Company under this
Agreement, shall impair any such right, power or remedy of such holder nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any holder of any
breach or default under this Agreement, or any waiver on the part of any holder
of any provisions or conditions of this Agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing and as
set forth in Section 3.3 above. All remedies, either under this Agreement or by
law or otherwise afforded to any holder, shall be cumulative and not
alternative. Except as expressly provided herein, no delay or omission to
exercise any right, power, or remedy occurring to the Company,
-19-
<PAGE>
upon any breach or default of the holder under this Agreement, shall impair any
such right, power, or remedy of the Company, nor shall it be construed to be a
waiver of any such breach or default, or an acquiescence therein, or of or in
any similar breach or default thereafter occurring; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent or approval of
any kind or character on the part of the Company of any breach of default under
this Agreement, or any waiver on the part of the Company of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to the Company, shall be
cumulative and not alternative.
3.6 EXPENSES. The Company and each Purchaser shall bear its own expenses
--------
incurred on its behalf with respect to this Agreement and the transactions
contemplated hereby (except as otherwise provided herein) and any amendments or
waivers hereto.
3.7 ATTORNEYS' FEES. In the event of any litigation in a court of
---------------
competent jurisdiction arising in connection with this Agreement and the
transactions contemplated hereby, the prevailing party in judgment shall be
entitled to recover reasonable legal fees and costs in connection with such
action.
3.8 COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
3.9 SEVERABILITY. In the event that any provision of this Agreement
------------
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.
3.10 TITLES AND SUBTITLES. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not considered in construing or
interpreting this Agreement.
3.11 INAPPLICABILITY OF CERTAIN SECTIONS TO WARNER-LAMBERT. Sections 2.2,
-----------------------------------------------------
2.3 and 2.4 shall not apply to the Warner-Lambert Preferred and the Warner-
Lambert Conversion Stock, and instead the provisions of Section 7 of the Warner-
Lambert Agreement shall continue to govern the transferability of such shares.
All provisions of the Warner-Lambert Agreement (except Section 8, which is
superseded by this Agreement) shall continue in full force and effect.
-20-
<PAGE>
The foregoing Agreement is hereby executed as of the date first written
above.
"COMPANY"
GENVEC, INC.
a Delaware corporation
By:____________________________________
Paul Fischer, Ph.D.
President and Chief Executive Officer
ARCH VENTURE FUND, LIMITED PARTNERSHIP
By: ARCH Development Corporation
General Partner
By:____________________________________
Name:
Title:
ARCH VENTURE FUND II, L.P.
By: ARCH Management Partners II, L.P.
General Partner
By: ARCH Venture Partners, L.P.
General Partner
By: ARCH Venture Corporation
General Partner
By:____________________________________
Name:
Title:
[REGISTRATION RIGHTS AGREEMENT DATED 4/22/98]
-21-
<PAGE>
BETTY S. BARDIGE
By:____________________________________
Richard D. Segal
Attorney-In-Fact
EDWARD BENZ
_______________________________________
BIOTECH GROWTH SA
By:____________________________________
Name:
Title:
CANAAN CAPITAL LIMITED PARTNERSHIP
By: Canaan Capital Management L.P.
General Partner
By: Canaan Capital Partners L.P.
General Partner
By:____________________________________
Harry T. Rein
Managing General Partner
CANAAN CAPITAL OFFSHORE LIMITED PARTNERSHIP, C.V.
By: Canaan Capital Management L.P.
General Partner
By: Canaan Capital Partners L.P.
General Partner
By:____________________________________
Harry T. Rein
Managing General Partner
[REGISTRATION RIGHTS AGREEMENT DATED 4/22/98]
-22-
<PAGE>
CANAAN S.B.I.C., L.P.
By: Canaan S.B.I.C. Partners, L.P.
General Partner
By:____________________________________
Harry T. Rein
Managing General Partner
WESLEY CHURCH
_______________________________________
CIP CAPITAL L.P.
By:____________________________________
Name:
Title:
THE CIT GROUP/VENTURE CAPITAL, INC.
By:____________________________________
Name:
Title:
MARTIN P. CLEARY
_______________________________________
HERBERT J. CONRAD
_______________________________________
[REGISTRATION RIGHTS AGREEMENT DATED 4/22/98]
-23-
<PAGE>
NEAL DELUCA
_______________________________________
DIFCO, INC.
By:____________________________________
Name:
Title:
ENTERPRISE DEVELOPMENT FUND, L.P.
By:____________________________________
Thomas S. Porter
General Partner
ENTERPRISE DEVELOPMENT FUND LIMITED PARTNERSHIP
By:____________________________________
Thomas S. Porter
General Partner
ENTERPRISE DEVELOPMENT FUND LIMITED PARTNERSHIP
By:____________________________________
S. Porter
General Partner
[REGISTRATION RIGHTS AGREEMENT DATED 4/22/98]
-24-
<PAGE>
CHRISTOPHER EVANS
_______________________________________
DAVID J. FINK
_______________________________________
FOURTH GENERATION PARTNERS
By:____________________________________
Richard D. Segal
Managing Partner
GENENTECH, INC.
By:____________________________________
Name: Cynthia J. Ladd
Title: Vice President, Corporate Law
JOSEPH C. GLOROSIO, III
_______________________________________
HILLMAN MEDICAL VENTURES 1992 L.P.
By: Hillman/Dover Limited
Partnership, General Partner
By: Wilmington Securities, Inc.
General Partner of Hillman/Dover Limited
Partnership
By:____________________________________
Darlene Clarke
Vice President
[REGISTRATION RIGHTS AGREEMENT DATED 4/22/98]
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<PAGE>
HILLMAN MEDICAL VENTURES 1993 L.P.
By: Hillman/Dover Limited
Partnership, General Partner
By: Wilmington Securities, Inc.
General Partner of Hillman/Dover Limited
Partnership
By:____________________________________
Darlene Clarke
Vice President
HILLMAN MEDICAL VENTURES 1994 L.P.
By: Hillman/Dover Limited Partnership
General Partner
By: Wilmington Securities, Inc.
General Partner of Hillman/Dover Limited
Partnership
By:____________________________________
Darlene Clarke
Vice President
LEAF HUANG
_______________________________________
KATHERINE B. KAUFMAN
_______________________________________
WILMA P. MCCLEVE
_______________________________________
[REGISTRATION RIGHTS AGREEMENT DATED 4/22/98]
-26-
<PAGE>
MINDFUL PARTNERS
By:____________________________________
Stuart Rudick
General Partner
HENRY F. & RUTH F. PEAR, TENANTS IN ENTIRETIES
By:____________________________________
Henry F. Pear
By:____________________________________
Ruth F. Pear
PRINCE VENTURE PARTNERS III, L.P.
By: PRINCE VENTURE, L.P.
General Partner
By:____________________________________
Gregory Zaic
General Partner
PRISM PARTNERS I
By:____________________________________
Jerry Weintraub
General Partner
QUAI LIMITED
By:____________________________________
Dominique Liardet
Attorney-In-Fact
PAUL ROBBINS
______________________________________
JOEL SCHUR
_______________________________________
[REGISTRATION RIGHTS AGREEMENT DATED 4/22/98]
-27-
<PAGE>
SIERRA VENTURE IV, L.P.
By: SV ASSOCIATES IV, L.P.
General Partner
By:____________________________________
Petri Vainio
General Partner
SIERRA VENTURES INTERNATIONAL IV, L.P.
By: SV ASSOCIATES IV, L.P.
General Partner
By:____________________________________
Petri Vainio
General Partner
JERRY W. SMITH, PH.D.
_______________________________________
STATE OF MICHIGAN RETIREMENT SYSTEM
By: State Treasurer of the State of Michigan,
Custodian of the Michigan Public School
Employees' Retirement System, State
Employees' Retirement System, Michigan State
Police Retirement System, and Michigan Judges
Retirement System
By:____________________________________
Paul E. Rice
Administrator, Alternative
Investment Division
PETER A. WARD
_______________________________________
[REGISTRATION RIGHTS AGREEMENT DATED 4/22/98]
-28-
<PAGE>
WARNER-LAMBERT COMPANY
By:____________________________________
Name:
Title:
[REGISTRATION RIGHTS AGREEMENT DATED 4/22/98]
-29-
<PAGE>
ROBERT WILLIAMSON
_______________________________________
[REGISTRATION RIGHTS AGREEMENT DATED 4/22/98]
-30-
<PAGE>
RONALD G. CRYSTAL, M.D.
_______________________________________
[REGISTRATION RIGHTS AGREEMENT DATED 4/22/98]
-31-
<PAGE>
SCIOS, INC.
By:____________________________________
Name:
Title:
[REGISTRATION RIGHTS AGREEMENT DATED 4/22/98]
-32-
<PAGE>
SCHEDULE 1
----------
Arch Venture Fund Limited Partnership
Arch Venture Fund II, L.P.
Genentech, Inc.
Hillman Medical Ventures 1992, L.P.
Hillman Medical Ventures 1993, L.P.
Prince Venture Partners III, L.P.
Sierra Ventures IV, L.P.
Sierra Ventures International IV, L.P.
-33-
<PAGE>
SCHEDULE 2
----------
Arch Venture Fund Limited Partnership
Arch Venture Fund II, L.P.
-34-
<PAGE>
SCHEDULE 3
----------
Edward Benz
Wesley Church
Martin P. Cleary
Herbert J. Conrad
Neal DeLuca
Enterprise Development Fund Limited Partnership
Christopher Evans
David J. Fink
Joseph C. Glorosio, III
Leaf Huang
Katherine B. Kaufman
Wilma P. McCleve
Paul Robbins
Jerry W. Smith, Ph.D.
Peter A. Ward
Warner-Lambert Company
Robert Williamson
-35-
<PAGE>
SCHEDULE 4
----------
Difco, Inc.
Enterprise Development Fund Limited Partnership
Joel Schur
Warner-Lambert Company
-36-
<PAGE>
SCHEDULE 5
----------
Arch Venture Fund II, L.P.
Enterprise Development Fund, L.P.
Genentech, Inc.
Hillman Medical Ventures 1994, L.P.
Prince Venture Partners III, L.P.
Sierra Ventures IV, L.P.
Sierra Ventures International IV, L.P.
-37-
<PAGE>
SCHEDULE 6
----------
Betty S. Bardige
Biotech Growth SA
Canaan Capital Limited Partnership
Canaan Capital Offshore Limited Partnership, C.V.
Canaan S.B.I.C., L.P.
CIP Capital L.P.
The CIT Group/Venture Capital, Inc.
Fourth Generation Partners
Mindful Partners, L.P.
Prism Partners I, L.P.
Quai Limited
State of Michigan Retirement System
Henry and Ruth Pear
-38-
<PAGE>
[LETTERHEAD OF KPMG PEAT MARWICK LLP APPEARS HERE]
EXHIBIT 23.1
The Board of Directors
GenVec, Inc.:
We consent to the use of our report included herein and to the reference to
our firm under the headings "Selected Financial Data" and "Experts" in the
prospectus.
/s/ KPMG Peat Marwick LLP
McLean, Virginia
May 22, 1998
