<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 20, 1996
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
VIROPHARMA, INC.
(TO BE RENAMED "VIROPHARMA INCORPORATED")
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 2834 23-2789550
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE NO.)
ORGANIZATION)
76 GREAT VALLEY PARKWAY
MALVERN, PA 19355
(610) 651-0200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
CLAUDE H. NASH
PRESIDENT AND CHIEF EXECUTIVE OFFICER
VIROPHARMA, INC.
76 GREAT VALLEY PARKWAY
MALVERN, PA 19355
(610) 651-0200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES OF ALL COMMUNICATIONS TO:
DAVID R. KING JEFFREY S. MARCUS
MORGAN, LEWIS & BOCKIUS LLP LAURA M. PERZ
2000 ONE LOGAN SQUARE MORRISON & FOERSTER LLP
PHILADELPHIA, PA 19103-6993 1290 AVENUE OF THE AMERICAS
(215) 963-5000 NEW YORK, NY 10104-0012
(212) 468-8000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PRICE PER UNIT(2) OFFERING PRICE(2) FEE
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.002 par
value................. 2,587,500 $13.00 $33,637,500 $11,600.00
- -------------------------------------------------------------------------------------------
</TABLE>
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(1) Includes 337,500 shares which the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933.
----------------
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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Dated September 20, 1996
2,250,000 Shares
LOGO
Common Stock
--------------
All of the shares of Common Stock, $.002 par value per share ("Common Stock")
offered hereby are being sold by ViroPharma Incorporated ("ViroPharma" or the
"Company").
Prior to this offering, there has been no public market for the Common Stock
of the Company. It is estimated that the initial public offering price will be
between $11.00 and $13.00 per share. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price.
Application has been made to list the Common Stock on The Nasdaq National
Market under the symbol "VPHM."
--------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OFRISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS.
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total (3).................................. $ $ $
</TABLE>
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(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 payable by the Company estimated to be $500,000.
(3) The Company has granted the Underwriters an option, exercisable within 30
days of the date hereof, to purchase an aggregate of up to 337,500
additional shares, at the Price to Public, less Underwriting Discounts and
Commissions, to cover over-allotments, if any. If all such additional
shares are purchased, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
--------------
The Common Stock is offered by the several Underwriters named herein when, as
and if received and accepted by them, and subject to their right to reject
orders in whole or in part and subject to certain other conditions. It is
expected that delivery of certificates for such shares will be made at the
offices of Cowen & Company, New York, New York on or about , 1996.
--------------
COWEN & COMPANY J.P. MORGAN & CO.
, 1996
<PAGE>
[Photo collage of child, medical equipment and bottle containing the oral
formulation of one of the Company's drug candidates under development and
diagram depicting RNA replication]
ViroPharma
ANTIVIRAL PHARMACEUTICALS FOR DISEASES CAUSED BY RNA VIRUSES
. RNA viruses are responsible for the majority of human virus diseases.
. ViroPharma discovers and develops proprietary small molecule inhibitors of
RNA virus replication.
. Pleconaril, Viropharma's most advanced compound, is currently in Phase II
for viral meningitis and "summer flu."
Some of the Company's drug candidates are currently undergoing clinical
trials while others are in research or preclinical development. To date, the
Company has not completed the development of any products.
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.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. This Prospectus contains forward-looking statements which
involve risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in forward-looking statements. Factors
that might cause or contribute to such differences include, but are not limited
to, those discussed in "Risk Factors."
THE COMPANY
ViroPharma Incorporated ("ViroPharma" or the "Company") is engaged in the
discovery and development of proprietary antiviral pharmaceuticals for the
treatment of diseases caused by RNA viruses. The Company has focused its
initial drug development and discovery activities on six RNA virus diseases:
viral meningitis, "summer flu," the common cold, influenza, hepatitis C and
viral pneumonia. Each year, the majority of the world's population is afflicted
by at least one of these diseases, for which antiviral therapies are currently
either inadequate or unavailable. The Company's most advanced compound,
pleconaril, previously designated VP 63843, is currently being developed for
the treatment of three of these diseases. ViroPharma has completed a Phase IIa
clinical trial which demonstrated that pleconaril is safe and efficacious in
"summer flu." The Company is conducting a Phase IIb clinical trial with
pleconaril for viral meningitis and preclinical studies with this compound for
the common cold. The Company has additional compounds in earlier stages of
development for the treatment of influenza, hepatitis C and viral pneumonia.
ViroPharma believes its drug discovery and development technologies and
expertise have potential applicability to a broad range of diseases caused by
RNA viruses.
RNA viruses are responsible for the majority of human viral diseases, causing
illnesses ranging from acute and chronic ailments to fatal infections. RNA
viruses continue to emerge, spreading from rural and developing regions of the
world to urbanized centers. Despite efforts by the scientific and medical
communities to develop vaccines and pharmaceuticals to prevent and treat
certain of these diseases, medicines are currently inadequate or are not
available for the majority of RNA virus diseases. The Company believes the
significance and prevalence of RNA virus diseases, and the limited availability
and effectiveness of current antiviral pharmaceuticals, has created a
compelling need for new pharmaceuticals to treat these diseases.
ViroPharma believes it is the leader in RNA virology and RNA antiviral drug
discovery and development. The Company has focused its drug discovery and
development efforts on identifying and advancing inhibitors of the process of
viral RNA uncoating and replication. The Company believes that this process
represents an extremely attractive target for therapeutic intervention in
disease caused by RNA viruses. For RNA viruses to cause disease, they must
replicate. Therefore, inhibiting RNA virus replication can prevent, limit or
stop disease. The viral activities involved in this replication process are
unique to RNA viruses, yet universal among all RNA viruses. Therefore,
technologies used for the development of inhibitors of this process have
potential applicability to a broad range of diseases caused by RNA viruses.
ViroPharma has discovered and characterized RNA uncoating and replication
activities, identified critical molecular targets, developed novel high
throughput screening assays and discovered and optimized proprietary small
molecule compounds identified by screening chemical libraries, including the
Company's specialized library.
ViroPharma's most advanced compound, pleconaril, is a potent, broad-spectrum,
orally-active inhibitor of the RNA viruses that cause viral meningitis, "summer
flu" and the common cold. In the Company's Phase IIa clinical trial using a
"summer flu" disease model, pleconaril demonstrated efficacy with respect to
all five clinical endpoints evaluated in the trial. The Company commenced a
Phase IIb clinical trial of pleconaril for viral meningitis in June 1996.
ViroPharma is also conducting preclinical studies for an intranasal formulation
of pleconaril to treat the common cold and expects to file an investigational
new drug application with the U.S. Food and Drug Administration for this
formulation in late 1997. No serious adverse events attributable to pleconaril
have been observed in 83 participants in the clinical trials conducted by the
Company to date. In addition to pleconaril, the Company is conducting
preclinical studies or research on antiviral compounds for influenza, hepatitis
C and viral pneumonia.
3
<PAGE>
The Company's objective is to become the leading discoverer, developer and
marketer of proprietary antiviral pharmaceuticals for RNA virus diseases
through the implementation of the following strategies: (1) focusing on RNA
virus diseases to capitalize on the significant market opportunity that they
present, (2) broadly applying its technological expertise in RNA virology to
establish a substantial product pipeline, (3) conducting parallel drug
assessments to accelerate, and enhance the efficiency of, drug discovery and
development, (4) pursuing disease indications for rapid demonstration of
efficacy to expedite product development and (5) pursuing strategic
relationships by leveraging its leadership position in RNA virology to enhance
its drug discovery capabilities and in-licensing opportunities and facilitate
the commercialization of its products. The Company has entered into an
agreement with Sanofi S.A. ("Sanofi") to secure the exclusive development and
marketing rights for pleconaril, previously designated VP 63843, in the United
States and Canada for use in a broad class of disease indications. Pleconaril
was discovered at Sanofi by scientists who are now with ViroPharma. The Company
has also entered into a collaborative drug discovery and development agreement
with Boehringer Ingelheim Pharmaceuticals, Inc. ("Boehringer Ingelheim") for
one hepatitis C target identified by ViroPharma. In addition, the Company is
collaborating with other pharmaceutical and technology companies, as well as
academic institutions, to access enabling technologies and compound libraries
as they pertain to the treatment of RNA virus diseases.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered hereby................... 2,250,000 shares
Common Stock to be outstanding after the of-
fering....................................... 8,820,951 shares(1)
Use of proceeds............................... For the further development of
pleconaril, including clinical
trials and certain pre-
marketing activities, ongoing
research and development
programs and general corporate
purposes, which may include
capital equipment expenditures.
Proposed Nasdaq National Market Symbol........ VPHM
</TABLE>
- --------
(1) Excludes (i) 410,283 shares issuable upon exercise of options outstanding
as of September 1, 1996 at a weighted average exercise price of $0.64 per
share and (ii) shares issuable upon exercise of warrants to purchase Series
B Preferred Stock that will not be exercised in connection with the
offering but will be converted into warrants to purchase 21,675 shares of
Common Stock at an exercise price of $2.94 per share. Includes 497,250
unvested shares of Common Stock purchased by certain founders of the
Company. See "Management--Executive Compensation," "Management--Stock
Option Plan," "Certain Transactions--Transactions with Founders" and
"Description of Capital Stock--Warrants."
4
<PAGE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30,
------------------------
PERIOD FROM
DECEMBER 5,
1994
(INCEPTION) YEAR
THROUGH ENDED
DECEMBER 31, DECEMBER 31,
1994 1995 1995 1996
------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DA-
TA:
Grant revenue............. $ -- $ 90,813 $ -- $ --
Operating expenses:
Research and develop-
ment................... 75,779 2,930,106 677,730 2,624,558
General and administra-
tive................... 243,318 1,091,299 362,928 673,719
--------- ----------- ----------- -----------
Total operating expenses.. 319,097 4,021,405 1,040,658 3,298,277
--------- ----------- ----------- -----------
Net loss.................. $(319,097) $(3,854,862) $(1,035,818) $(3,223,996)
========= =========== =========== ===========
Pro forma net loss per
share(1)................. $ (.90) $ (.52)
Shares used in computing
pro forma net loss per
share(1)................. 4,304,776 6,163,767
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED(2)(3)
---------- ------------ -----------------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-
term investments.................. $8,435,802 8,435,802 33,045,802
Working capital.................... 7,274,927 7,274,927 31,884,927
Total assets....................... 8,963,910 8,963,910 33,573,910
Long-term capital leases........... 144,014 144,014 144,014
Mandatorily redeemable convertible
preferred stock................... 15,053,996 -- --
Total stockholders' equity (defi-
cit).............................. (7,682,656) 7,371,340 31,981,340
</TABLE>
- --------
(1) See Note 2 of Notes to Financial Statements.
(2) Reflects the Preferred Stock Conversion (as defined below).
(3) Gives effect to the Warrant Exercise and reflects the sale of 2,250,000
shares of Common Stock offered by the Company at an assumed initial public
offering price of $12.00 per share and the application of estimated net
proceeds therefrom. See "Use of Proceeds."
----------------
Except as otherwise noted, all information contained in this Prospectus (i)
assumes no exercise of the Underwriters' over-allotment option, (ii) gives
effect to the exercise in full of warrants to purchase shares of Series B
Preferred Stock, which will expire upon the closing of the offering (the
"Warrant Exercise"), and a .51-for-one stock split of the Common Stock to be
effected immediately prior to the offering (the "Reverse Stock Split") and
(iii) reflects the conversion of all outstanding shares of Series A Convertible
Preferred Stock, par value $0.001 per share (the "Series A Preferred Stock"),
Series B Convertible Preferred Stock, par value $0.001 per share (the "Series B
Preferred Stock"), including those acquired in the Warrant Exercise, and Series
C Convertible Preferred Stock, par value $0.001 per share (the "Series C
Preferred Stock," and, together with the Series A Preferred Stock and Series B
Preferred Stock, the "Redeemable Preferred Stock"), into an aggregate of
5,669,781 shares of Common Stock upon the closing of this offering (the
"Preferred Stock Conversion"). All references to "ViroPharma" or to the
"Company" refer to ViroPharma Incorporated, a Delaware corporation.
5
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. The following factors, in addition to the other information in
this Prospectus, should be considered carefully in evaluating the Company and
its business before purchasing shares of Common Stock offered hereby. This
Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in forward-looking statements. Factors that might cause or
contribute to such a difference include, but are not limited to, those
discussed in the following risk factors.
EARLY STAGE OF DEVELOPMENT; CONTINUING OPERATING LOSSES; UNCERTAINTY OF FUTURE
PROFITABILITY
The Company currently has no sources of operating revenues and has incurred
net operating losses since its inception in 1994. At June 30, 1996, the
Company had an accumulated deficit of approximately $7.4 million. Such losses
have resulted principally from costs incurred in research, development and
clinical trials and general and administrative costs associated with the
Company's operations. The Company expects that operating losses will continue
at increasing levels for at least the next several years as its research,
product development, clinical testing and marketing activities expand. Such
losses will continue unless and until such time as product approvals are
obtained and product sales generate sufficient revenue to offset expenses. The
Company's ability to achieve profitability will depend, in part, on its
ability to successfully develop, clinically test and obtain regulatory
approvals for its drug candidates, as well as its ability to manufacture and
market any approved products either by itself or in collaboration with others.
There can be no assurance that the Company will successfully complete its
product development efforts in a timely manner, if at all, that it will
receive any regulatory approvals required for the clinical development,
commercial manufacture or marketing of its proposed products or that product
sales based on such regulatory approvals will be profitable to the Company.
Accordingly, the extent of future losses and the time required to achieve
profitability is highly uncertain. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
ABSENCE OF PRODUCTS; PRODUCT DEVELOPMENT RISKS
The Company has not completed the development of any products. Some of the
Company's drug candidates are currently undergoing clinical trials while
others are in research or preclinical development. The Company's drug
candidates, other than pleconaril, are not expected to be commercially
available for at least several years, if at all, and pleconaril is not
expected to be commercially available for at least three years, if at all. The
Company has not begun to market or generate revenues from the
commercialization of any products. The majority of the Company's drug
candidates will require significant additional research and development and
laboratory testing prior to submission of any regulatory application, and all
of its drug candidates will require significant clinical testing and
regulatory approval prior to commercialization. There can be no assurance that
the Company will be permitted by regulatory authorities to conduct additional
clinical testing of the Company's compounds or that, if permitted, such
additional clinical testing will prove that such drugs are safe and
efficacious to the extent necessary to permit the Company to obtain marketing
approvals for them from regulatory authorities. There can be no assurance that
the results of preclinical studies and completed clinical trials will be
indicative of results obtained in future clinical trials. Adverse or
inconclusive clinical trial results concerning any of the Company's drug
candidates could result in increased costs and significantly delay the filing
for marketing approval for such drug candidates with the United States Food
and Drug Administration (the "FDA") or result in a filing for a narrower
indication. In such event, further studies would be required with respect to
other indications to support any filing of a supplemental application covering
such indications. There can be no assurance that the Company's research and
development, preclinical testing or clinical trials will be successfully
completed, that regulatory approvals will be obtained or will be as broad as
sought, that the Company's products will be capable of being produced in
commercial quantities at reasonable costs or that any products, if introduced,
will achieve market acceptance. Any problems or delays relating to research
and development, regulatory approval and manufacturing, and the failure to
address such problems or delays, could have a material adverse effect on the
Company. See "Business--Product Development and Research."
6
<PAGE>
The Company's drug candidates and future product development efforts are
subject to the risks of failure inherent in the development of pharmaceutical
products. These risks include the possibilities that any or all of the
Company's drug candidates will be found to be ineffective, unsafe, toxic or
otherwise fail to either meet applicable regulatory standards or receive
necessary regulatory approvals or clearances. There can be no assurance that
unacceptable toxicities or side effects will not occur at any dose level at
any time in the course of toxicological studies or human clinical trials of
the Company's drugs. The appearance of any such unacceptable toxicities or
side effects in toxicology studies or human clinical trials could cause the
Company or regulatory authorities to interrupt, limit, delay or abort the
development of any of the Company's drugs and could ultimately prevent their
approval for any of the targeted indications. Even after receiving approval,
products may later exhibit adverse effects that prevent their widespread use
and necessitate their withdrawal from the market. There can be no assurance
that any products under development by the Company will be safe when
administered to patients. Furthermore, there is a risk that the Company's drug
candidates, even if safe and effective, will be difficult to develop into
commercially viable products, difficult to manufacture on a large scale or
uneconomical to market and that proprietary rights of third parties may
preclude the Company from marketing such drug candidates. Moreover, the
Company's competitors may succeed in developing technologies or products that
are more effective or cost effective than those of the Company. Rapid
technological changes or developments by others may result in the Company's
drug candidates becoming obsolete or noncompetitive. See "--Competition," "--
Rapid Technological Change and Uncertainty" and "Business--Competition."
DEPENDENCE ON MOST ADVANCED DRUG CANDIDATE
The Company's research and development resources are primarily dedicated to
its most advanced drug candidate, pleconaril. Significant delays in the
Company's clinical trials of pleconaril, unfavorable results in such trials,
failure to obtain regulatory approval for the commercialization of pleconaril
or any related product or failure to achieve market acceptance of pleconaril
or any related product could have a material adverse effect upon the Company.
There can be no assurance that pleconaril will be successfully developed.
Although the Company is currently seeking to develop other drug candidates and
expand the number of drug candidates it has under development, there can be no
assurance that it will be successful in such development or expansion.
Furthermore, the proceeds of this offering are not expected to be sufficient
to complete all clinical studies and other required testing for pleconaril or
any other of the Company's product development candidates. See "--Government
Regulation; No Assurance of Regulatory Approval" and "Business--Product
Development and Research."
UNCERTAINTY REGARDING CLINICAL TRIALS
The results of preclinical studies and initial clinical trials of the
Company's product candidates are not necessarily predictive of the results
from large-scale clinical trials. The Company must demonstrate through
preclinical studies and clinical trials that its product candidates are safe
and effective for use in each target indication before the Company can obtain
regulatory approvals for the commercial sale of those products. These studies
and trials may be very costly and time-consuming.
The rate of completion of clinical trials is dependent upon, among other
factors, the rate of enrollment of patients. Because some of the Company's
drug candidates are targeted at diseases which are more prevalent in certain
seasons, failure to accrue an adequate number of clinical patients during the
appropriate season could cause significant delays and increased costs. Such
delays and increased costs could have a material adverse effect on the
Company's drug development program. Furthermore, there can be no assurance
that if the Company's clinical trials are completed, the Company will be able
to submit a New Drug Application (an "NDA") as scheduled or that any such
application will be approved by the FDA in a timely manner, if at all. The
cost to the Company of conducting human clinical trials for any potential
product can vary dramatically based on a number of factors, including the
order and timing of clinical indications pursued and the extent of development
and financial support, if any, from corporate collaborators. The Company may
have difficulty obtaining sufficient patient populations, clinicians or
support to conduct its clinical trials as planned and may have to expend
substantial additional funds to obtain access to such resources, or delay or
modify its plans significantly.
7
<PAGE>
GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVAL
The production and marketing of products under development by the Company,
as well as its ongoing research and development activities, are and will be
subject to regulation by governmental agencies, including the FDA in the
United States and similar regulatory authorities in other countries. Any
potential therapeutic product developed by the Company will be subject to
rigorous preclinical and clinical testing and approval pursuant to regulations
administered by the FDA, comparable agencies in other countries and, to a
lesser extent, by state regulatory authorities. The approval process for the
Company's drug candidates will involve significant time and expenditures.
There can be no assurance that the Company will be able to successfully
complete the clinical development of, and file its NDA for, pleconaril or any
other drug candidate. See "Business--Government Regulation."
Rigorous preclinical and clinical testing and the regulatory approval
process can take many years and require the expenditure of substantial
resources. There can be no assurance that the FDA or other regulatory
authority approval for any product candidates developed by the Company will be
granted on a timely basis or at all. Any delay in obtaining, or any failure to
obtain, such approvals would materially and adversely affect the marketing of
the Company's drug candidates and the Company's business, financial position
and results of operations. In addition, legislation may be enacted, or
regulations promulgated, in the future which might adversely affect the
Company's ability to develop, manufacture or market its drug candidates. If
regulatory approval of a drug is obtained, such approval may be conditioned
upon certain limitations and restrictions on the drug's use. Any FDA approvals
that may be granted will be subject to continual review, and later discovery
of previously unknown problems may result in withdrawal of products from
marketing. Failure of the Company to comply with applicable regulatory
requirements can, among other things, result in warning letters, fines,
withdrawal of regulatory approvals, product recalls, seizure of products,
operating restrictions, injunctions or criminal prosecution. See "Business--
Government Regulation."
UNCERTAIN ABILITY TO MEET CAPITAL NEEDS
The Company will require substantial additional funds for its research,
preclinical and clinical testing, operating expenses, regulatory applications,
manufacturing, marketing and sales programs. The Company's capital
requirements will depend on numerous factors, including the progress of its
research and development programs, the progress of preclinical and clinical
testing, the time and cost involved in obtaining regulatory approvals, the
cost of filing, prosecuting, defending and enforcing any patent claims and
other intellectual property rights, competing technological and market
developments, changes and developments in the Company's existing
collaborative, licensing and other relationships, the terms of any new
collaborative, licensing and other arrangements that the Company may establish
and the development of commercialization activities and arrangements.
Moreover, the Company's fixed commitments, including salaries and fees for
current employees and consultants, rent, payments under license agreements and
other contractual commitments, are substantial and are likely to increase as
additional agreements are entered into and additional personnel are retained.
The Company believes that the net proceeds of this offering, together with
proceeds from the collaborative drug discovery and development agreement with
Boehringer Ingelheim, available cash, grant revenue and interest income,
should be adequate to fund its current and anticipated levels of operations
through mid-1998. However, the Company's cash requirements may vary materially
and could be significantly higher than those now planned because of results of
research and development and drug candidate testing, relationships with
strategic partners, changes in the focus and direction of the Company's
research and development programs, competitive and technological advances, the
FDA and foreign regulatory requirements and other factors. See "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources," "Business--Strategic
Relationships," "Business--Patents," "Management" and Notes to Financial
Statements.
The Company will need to raise substantial additional capital to fund its
future operations. The proceeds of this offering are not expected to be
sufficient to complete all clinical studies and other required testing for
pleconaril or any other of the Company's product candidates. The Company will
likely seek such additional
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funding through public or private financing or collaborative, licensing and
other arrangements with corporate partners. If additional funds are raised by
issuing equity securities, further dilution to existing stockholders will
result, and future investors may be granted rights superior to those of
existing stockholders. There can be no assurance, however, that additional
financing will be available when needed or, if available, will be available on
acceptable terms. Insufficient funds may prevent the Company from executing
its business plan or may require the Company to delay, scale back or eliminate
certain of its research and product development programs or license to third
parties rights to develop or commercialize products or technologies that the
Company would otherwise seek to develop or commercialize itself.
DEPENDENCE ON CORPORATE COLLABORATIONS; NEED FOR ADDITIONAL COLLABORATORS
The Company's strategy for the research, development and commercialization
of its drug candidates may require the Company to enter into various
arrangements with corporate and academic collaborators, licensors, licensees
and others, and the Company may, therefore, be dependent upon the subsequent
success of these third parties in performing their responsibilities. The
Company has obtained, and intends to obtain in the future, licensed rights to
certain proprietary technologies and compounds from other entities,
individuals and research institutions, to which it will be obligated to pay
license fees and, if it develops products based upon the licensed technology,
to also make milestone payments and pay royalties. There can be no assurance
that the Company will be able to enter into collaborative, license or other
arrangements that the Company deems necessary or appropriate to develop and
commercialize its drug candidates, or that any or all of the contemplated
benefits from such collaborative, license or other arrangements will be
realized. Certain of the collaborative, license or other arrangements that the
Company may enter into in the future may place responsibility on the Company's
collaborative partners for preclinical testing and human clinical trials and
for the preparation and submission of applications for regulatory approval for
potential pharmaceutical or other products. Should any collaborative partner
fail to develop or successfully commercialize any drug candidate to which it
has rights, the Company's business may be materially adversely affected.
Moreover, these arrangements may require the Company to transfer certain
material rights to such corporate partners, licensees and others. In the event
that the Company decides to license or sublicense certain of its commercial
rights, there can be no assurance that such arrangements will not result in
reduced product revenue to the Company. There can be no assurance that any
revenues or profits will be derived from the Company's collaborative and other
arrangements, that any of the Company's current strategic arrangements will
continue or that the Company will enter into any future collaborations.
Furthermore, there can be no assurance that current or future collaborators
will not pursue alternative technologies or drug candidates either on their
own or in collaboration with others, including the Company's competitors, as a
means for developing treatments for the diseases sought to be addressed by the
Company's programs. See "Business--Strategic Relationships."
UNCERTAIN ABILITY TO PROTECT PATENTS AND PROPRIETARY TECHNOLOGY AND
INFORMATION
Because of the substantial length of time and expense associated with
bringing new products through development and regulatory approval to the
market place, the pharmaceutical industry places considerable importance on
obtaining patent and trade secret protection for new technologies, products
and processes. The Company's ability to compete effectively depends, in part,
on its ability to protect its proprietary technology, both in the United
States and abroad. The Company intends to file applications as appropriate for
patents covering the composition of matter or uses of its drug candidates or
its proprietary processes. The Company has five patent applications pending
with the U.S. Patent and Trademark Office ("PTO"), and the Company has
licensed the exclusive rights to antiviral agents which are the subject of
three issued U.S. patents and two related Canadian patent applications. The
Company will be dependent on the licensor to prosecute such patent
applications and may be dependent on the licensor to protect such patent
rights. The Company intends to file patent applications in certain foreign
jurisdictions. There can be no assurance that the PTO will grant the Company's
pending patent applications or that the Company will obtain any patents on its
proprietary products for which it subsequently applies. No assurance can be
given that any patents issued to, or licensed by, the Company will not be
challenged, invalidated or circumvented by other parties, or that the rights
granted thereunder will provide any competitive advantage. Furthermore, there
can be no assurance that others will not
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independently develop similar products, duplicate any of the Company's
products or, if patents are issued to the Company, design around the patented
products developed by the Company.
The Company also relies on trade secrets, know-how and continuing
technological advancements to support its competitive position. Although the
Company has entered into confidentiality and invention rights agreements with
its employees, consultants, advisors and collaborators, no assurance can be
given that such agreements will be honored or that the Company will be able to
effectively protect its rights to its unpatented trade secrets and know-how.
Moreover, there can be no assurance that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's trade secrets and know-how. In addition, many of
the Company's scientific and management personnel have been recruited from
other pharmaceutical companies where they were conducting research in areas
similar to those being pursued by the Company. As a result, the Company and
these individuals could be subject to allegations of trade secret violations
and similar claims.
In addition, to facilitate development of its proprietary technology base,
the Company may be required to obtain licenses to patents or other proprietary
rights from other parties, and such requirements could substantially delay the
Company's drug development or commercialization. There can be no assurance
that the patents of other parties will not have a material adverse effect on
the ability of the Company to do business or that any licenses required under
any patents or proprietary rights of other parties would be made available on
acceptable terms, if at all. If the Company does not obtain any such required
licenses, it could encounter delays in introducing products to market or may
be unable to develop, manufacture or sell products requiring such licenses.
The Company may, from time to time, collaborate with, and support research
conducted by, universities and governmental research organizations. There can
be no assurance that the Company will have, or be able to acquire, exclusive
rights to the inventions or technical information derived from such
collaborations or that disputes will not arise as to rights in related
research programs conducted by the Company or such collaborators. See
"Business--Strategic Relationships."
In addition, the Company could incur substantial costs in defending any
patent infringement suits or in asserting any patent rights, including those
licensed to the Company by third parties, and in defending suits against it or
its employees relating to ownership of or rights to intellectual property,
even if the outcome is not adverse to the Company. Such disputes could
substantially delay the Company's drug development or commercialization. The
PTO or a private party could institute an interference proceeding involving
the Company in connection with one or more of the Company's patents or patent
applications, and such proceedings could result in an adverse decision as to
priority of invention, in which case the Company would not be entitled to a
patent on the invention at issue in the interference proceeding. The PTO or a
private party could also institute reexamination proceedings involving the
Company in connection with one or more of the Company's patents, and such
proceedings could result in an adverse decision as to the validity or scope of
the patents. See "Business--Patents."
ABSENCE OF MARKETING AND SALES CAPABILITY
For certain products under development, the Company intends to conduct
marketing activities through its own sales force. The Company has no marketing
and sales staff and has no experience with respect to marketing its proposed
products. Significant additional expenditures, management resources and time
will be required to develop a sales force, and there can be no assurance that
the Company will be successful either in developing a sales force or
penetrating the markets for any proposed products it may develop. The Company
has entered, and in the future may enter, into marketing, distribution,
manufacturing, development or other third party arrangements, which grant
rights that may be exclusive to certain products to corporate partners in
return for royalties to be received on sales, if any. There can be no
assurance that the Company will be able to enter into any additional
arrangements, that any such arrangements will be successful or that the
Company will be able to obtain additional capital to conduct such activities
directly. See "Risk Factors--Dependence on Corporate Collaborations; Need for
Additional Collaborators" and "Business--Marketing."
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UNCERTAINTY OF PHARMACEUTICAL PRICING AND RELATED MATTERS; NEED FOR
REIMBURSEMENT
The future revenues and profitability of, and availability of capital for,
pharmaceutical companies such as the Company will be affected by the
continuing efforts of governmental and private third-party payors to contain
or reduce the costs of health care through various means. There have been, and
the Company expects there will continue to be, a number of federal, state and
foreign proposals to control the cost of drugs through governmental
regulation. It is uncertain what form any health care reform legislation may
take or what actions federal, state, foreign, and private payors may take in
response to the proposed reforms. The Company cannot predict when, if ever,
any suggested reforms will be implemented or the effect of any implemented
reform on the Company's business. Moreover, there can be no assurance that any
implemented reform will not have a material adverse effect on the Company's
business, financial position or results of operations.
The Company's ability to commercialize any products successfully will
depend, in part, on the extent to which reimbursement for the cost of such
products and related treatments will be available from government health
administration authorities, such as Medicare and Medicaid in the United
States, private health insurers and other organizations. Significant
uncertainty exists as to the reimbursement status of newly approved health
care products, particularly for indications for which there is no current
effective treatment or for which medical care typically is not sought, and
there can be no assurance that adequate third-party coverage will be available
to enable the Company to maintain price levels sufficient to realize an
appropriate return on its investment in product research and development. If
adequate coverage and reimbursement levels are not provided by government and
third-party payors for use of the Company's products, the market acceptance of
those products could be adversely affected.
COMPETITION
There are many entities, both public and private, including well-known,
large pharmaceutical companies, chemical companies, biotechnology companies
and research institutions, engaged in developing pharmaceuticals for human
therapeutic applications similar to the applications targeted by the Company.
Many of these companies have substantially greater financial, research and
development, manufacturing, marketing and human resources experience than the
Company. In addition, many of the Company's competitors have significantly
greater experience than the Company in conducting preclinical testing and
human clinical trials of new pharmaceutical products and in obtaining FDA and
other regulatory approvals of products. Accordingly, certain of the Company's
competitors may succeed in obtaining regulatory approval for products more
rapidly or effectively than the Company. Such companies may succeed in
developing products that are more effective or less costly than any that may
be developed by the Company and also may prove to be more successful than the
Company in the manufacture and marketing of any such products. See "Business--
Competition."
RAPID TECHNOLOGICAL CHANGE AND UNCERTAINTY
The Company is engaged in the pharmaceutical business, which is
characterized by extensive research efforts and rapid technological progress.
New developments in molecular biology, medicinal chemistry and other fields of
biology and chemistry are expected to continue at a rapid pace in both
industry and academia. There can be no assurance that research and discoveries
by others will not render some or all of the Company's programs or drug
candidates non-competitive or obsolete.
The Company's proposed business strategy is based, in part, upon the
application of the Company's technology platform, which encompasses various
elements from the fields of biotechnology and chemistry, and the application
of these technologies to the discovery and development of pharmaceutical
products for the treatment of infectious human diseases. This strategy is
subject to the risks inherent in the development of new products using new and
emerging technologies and approaches. There are no approved drugs on the
market for the treatment of certain of the disease indications being targeted
by the Company and, to date, the technologies being used by the Company, to
the Company's knowledge, have never been applied to develop an approved
pharmaceutical product. There can be no assurance that unforeseen problems
will not develop with the
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Company's technologies or applications, that the Company will be able to
successfully address technological challenges it encounters in its research
and development programs or that commercially feasible products will
ultimately be developed by the Company. See "--Competition" and "Business--
Competition."
NO ASSURANCE OF MARKET ACCEPTANCE
There can be no assurance that the Company's drug candidates, if approved by
the FDA and other regulatory authorities, will achieve market acceptance. The
degree of market acceptance will depend upon a number of factors, including
the receipt and timing of regulatory approvals, the availability of third-
party reimbursement and the establishment and demonstration in the medical
community of the clinical safety, efficacy and cost-effectiveness of the
Company's drug candidates and their advantages over existing technologies and
therapeutics. There can be no assurance that the Company will be able to
manufacture and successfully market its drug candidates even if they perform
successfully in clinical applications. Furthermore, there can be no assurance
that physicians or the medical community in general will accept and utilize
any therapeutic products that may be developed by the Company.
ABSENCE OF MANUFACTURING CAPABILITIES
The Company presently does not have the internal capability to manufacture
pharmaceutical products under the current Good Manufacturing Practices ("GMP")
prescribed by the FDA. The Company believes that it has sufficient quantities
of bulk drug substance to complete its clinical program for the viral
meningitis indication. The Company is working with Sanofi for the manufacture
of bulk drug substance and is also evaluating alternatives for the manufacture
of drug product. FDA Pre-Approval Inspection is required for all commercial
manufacturing sites.
Any contract manufacturers that the Company may use must adhere to GMP
regulations enforced by the FDA through its facilities inspection program.
These facilities must pass a pre-approval plant inspection before the FDA will
issue a pre-market approval of the product. Moreover, while the Company does
not currently intend to manufacture any pharmaceutical products itself, it may
choose to do so in the future. The Company has no experience in the
manufacture of pharmaceutical products for clinical trials or commercial
purposes. Should the Company decide to manufacture products itself, the
Company would be subject to the regulatory requirements described above, would
be subject to risks regarding delays or difficulties encountered in
manufacturing any such pharmaceutical products and would require substantial
additional capital. In addition, there can be no assurance that the Company
will be able to manufacture any such products successfully and in a cost-
effective manner. See "Business--Manufacturing" and "Business--Government
Regulation."
If the Company should encounter delays or difficulties with contract
manufacturers in producing, packaging or distributing its proposed products,
market introduction and subsequent sales of such products would be adversely
affected and the Company may have to seek alternative sources of supply. In
the event that the Company is required to seek alternative sources of supply,
it may incur additional costs or delays in product commercialization. If the
Company changes the source or location of supply or modifies the manufacturing
process, regulatory authorities will require the Company to demonstrate that
the product produced by the new source or from the modified process is
equivalent to the product used in any clinical trials conducted by the
Company. If the product is not shown to be equivalent, the Company's ability
to seek FDA or other regulatory approval could be delayed until additional
clinical trials are completed. Furthermore, there can be no assurance that the
Company will be able to enter into alternative supply arrangements at
commercially acceptable rates, if at all. No assurance can be given that the
manufacturers utilized by the Company will be able to provide the Company with
sufficient quantities of its products or that the products supplied to the
Company will meet the Company's specifications or delivery and other
requirements.
DEPENDENCE ON KEY PERSONNEL
Because of the specialized scientific nature of the Company's business, the
Company is highly dependent upon its ability to attract and retain qualified
scientific, technical and managerial personnel. There is intense
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competition for qualified personnel in the pharmaceutical field, and there can
be no assurance that the Company will be able to continue to attract and
retain qualified personnel necessary for the development of its business. The
loss of the services of existing personnel, as well as the failure to recruit
additional key scientific, technical and managerial personnel in a timely
manner would be detrimental to the Company's research and development programs
and to its business. Much of the know-how developed by the Company resides in
its scientific and technical personnel and is not readily transferable to
other personnel. The Company does not maintain "key man" life insurance on any
of its employees. Furthermore, the Company's anticipated growth and expansion
into areas and activities requiring additional expertise, such as marketing,
will require the addition of new management personnel. The failure to attract
and retain such personnel could adversely affect the Company's business. See
"Business--Human Resources" and "Management."
ENVIRONMENTAL MATTERS AND HAZARDOUS MATERIALS
The Company's research and development processes involve the controlled use
of hazardous, infectious and radioactive materials. The Company is subject to
stringent federal, state and local laws, rules, regulations and policies
governing the use, generation, manufacture, storage, air emission, effluent
discharge, handling and disposal of certain materials and wastes. There can be
no assurance that the Company will not be required to incur significant costs
to comply with environmental laws, rules, regulations and policies or that the
business, financial position or results of operations of the Company will not
be materially and adversely affected by current or future environmental laws,
rules, regulations and policies or by any releases or discharges of materials
which could be hazardous.
In its research activities, the Company utilizes radioactive and other
materials that could be hazardous to human health, safety or the environment.
These materials and various wastes resulting from their use are stored at the
Company's facility pending ultimate use and disposal. Although the Company
believes that its safety procedures for handling and disposing of such
materials comply with federal, state and local laws, rules regulations and
policies, the risk of accidental injury or contamination from these materials
cannot be entirely eliminated. In the event of such an accident, the Company
could be held liable for any resulting damages, and any such liability could
exceed the Company's resources. The Company does not maintain a separate
insurance policy for these types of risks.
PRODUCT LIABILITY; LIMITED INSURANCE COVERAGE
The Company's business exposes it to potential product liability risks which
are inherent in the testing, manufacturing and marketing of human therapeutic
products. The Company maintains claims made insurance against product
liability and defense costs incurred in connection with clinical testing in
the amount of five million dollars per occurrence and five million dollars in
the aggregate. The Company does not currently have any insurance coverage with
regard to the commercial sale of products. There can be no assurance that
claims against the Company arising with respect to clinical testing or sale of
products will be successfully defended, that the insurance carried by the
Company, if any, will be sufficient or that the Company will be able to obtain
additional, or maintain its current level of, product liability insurance on
acceptable terms. In addition, there can be no assurance that any
collaborators and licensees of the Company will agree to indemnify the Company
from, be adequately insured against or have a sufficient net worth to protect
the Company from product liability claims. A successful claim against the
Company in excess of the Company's insurance coverage could have a material
adverse effect on the Company.
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Company's
Common Stock and there can be no assurance that an active public market for
the Company's Common Stock will develop or, if one does develop, that it will
be sustained in the future. The initial public offering price of the Common
Stock will be determined by negotiations between the Company and the
Underwriters based on a number of factors that may not be indicative of future
market price. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. In addition, the
market price of the Common Stock is likely to be
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highly volatile as is frequently the case with publicly traded emerging growth
companies and biopharmaceutical companies. Announcements by the Company or its
competitors of technological innovations or new products, existing and future
collaborations, scientific discoveries and results of clinical trials, as well
as government regulatory action, developments or disputes concerning patent or
proprietary rights, market conditions and period-to-period fluctuations in
financial results, could have a significant impact on the Company's business
and the market price of the Common Stock. In addition, the stock market has
experienced extreme price and volume fluctuations. This volatility has
significantly affected the market prices of securities of many
biopharmaceutical companies. These broad market fluctuations may adversely
affect the market price of the Company's Common Stock.
CONTROL BY EXISTING STOCKHOLDERS
Upon the closing of this offering, directors and officers of the Company,
who in the aggregate currently own beneficially 5,908,958 shares of Common
Stock (excluding outstanding options and warrants to purchase shares of Common
Stock), will own beneficially in the aggregate shares of Common Stock
representing approximately 66.9% of the outstanding shares of Common Stock.
Accordingly, the Company's officers and directors together will have the
ability to elect a majority of the Company's directors and thereby control the
officers and management of the Company and will be able to control effectively
all matters requiring stockholder approval, including amendments to the
Company's Certificate of Incorporation, mergers, share exchanges, the sale of
all or substantially all of the Company's assets, going private transactions
and other fundamental transactions. Such concentration of ownership may have
the effect of delaying or preventing a change in control of the Company. See
"Principal Stockholders."
AVAILABILITY OF PREFERRED STOCK FOR ISSUANCE; ANTI-TAKEOVER PROVISIONS
In addition to its authorized shares of Common Stock, upon the closing of
this offering, the Company's Amended and Restated Certificate of Incorporation
will authorize the issuance of up to 5,000,000 shares of preferred stock
("Preferred Stock"). No shares of Preferred Stock of the Company will be
outstanding upon the closing of this offering, and the Company has no present
intention to issue any shares of Preferred Stock. However, because the rights
and preferences of any series of Preferred Stock may be set by the Board of
Directors at its sole discretion, the rights and preferences of any such
Preferred Stock may be superior to those of the Common Stock and thus may
adversely affect the rights of the holders of Common Stock. See "Description
of Capital Stock--Preferred Stock."
Upon the closing of this offering, the Company's Amended and Restated
Certificate of Incorporation and By-Laws and the Delaware General Corporation
Law will contain certain provisions that could prevent or delay the
acquisition of the Company by means of a tender offer, proxy contest or
otherwise, or could discourage a third party from attempting to acquire
control of the Company, even if such events would be beneficial to the
interests of the stockholders. These provisions, among other things will (i)
divide the Board of Directors into three classes, each of which serves for a
staggered three-year term, (ii) prohibit the removal of directors without
cause by the stockholders and (iii) grant the Board of Directors the
authority, without action by the stockholders, to fix the rights and
preferences of, and issue shares of, Preferred Stock. The Company is also
subject to Section 203 of the Delaware General Corporation Law which contains
certain anti-takeover provisions which prohibit a "business combination"
between a corporation and an "interested stockholder" within three years of
the stockholder's becoming an "interested stockholder" except in certain
limited circumstances. The business combination provisions of Section 203 of
the Delaware General Corporation Law may have the effect of deterring merger
proposals, tender offers or other attempts to effect changes in control of the
Company that are not negotiated and approved by the Board of Directors. See
"Description of Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have a total of 8,820,951
shares of Common Stock outstanding (9,158,451 shares if the Underwriters'
over-allotment option is exercised in full). All the
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shares of Common Stock offered hereby will be freely tradeable without
restriction or registration under the Securities Act of 1933, as amended (the
"Securities Act"), by persons other than "affiliates" of the Company, as
defined under the Securities Act. The 6,570,951 shares of Common Stock
currently outstanding are "restricted securities" as that term is defined by
Rule 144 as promulgated under the Securities Act, and may under certain
circumstances be sold in the public market without registration pursuant to
Rule 144.
Under Rule 144 (and subject to the conditions thereof), no restricted shares
of Common Stock will become eligible for sale upon completion of this
offering; approximately 1,173,000 shares will become eligible for sale between
December 29, 1996 and January 31, 1997, of which all such shares will be
subject to lockup restrictions as described below and 663,000 shares will be
subject in varying degrees to the additional restrictions contained in stock
purchase agreements (see "Certain Transactions--Transactions with Founders");
approximately 3,600,600 shares will become eligible for sale between June 16,
1997 and October 2, 1997; and the remaining 1,797,351 shares will be eligible
for sale after 1997. Moreover, upon completion of this offering the Company
will have outstanding options to purchase 410,283 shares of Common Stock and
outstanding warrants to purchase 21,675 shares of Common Stock. The Company's
officers and directors and all other stockholders, option holders and warrant
holders have agreed in writing that they will not, directly or indirectly,
offer, sell or otherwise dispose of any shares of Common Stock or rights to
acquire Common Stock (other than (i) with respect to employees of the Company,
pursuant to employee stock option plans, employee stock purchase plans or in
connection with other employee compensation arrangements or (ii) to a
transferee that agrees to be similarly bound) for a period of 180 days after
the date of this Prospectus, without the prior written consent of Cowen &
Company. See "Management--Executive Compensation--Option Grants and Year-End
Values," "Description of Capital Stock--Warrants," "Shares Eligible for Future
Sale" and "Underwriting."
The Securities and Exchange Commission has proposed an amendment to Rule 144
which would reduce the holding period required for shares subject to Rule 144
to become eligible for sale in the public market from two years to one year,
and from three years to two years in the case of Rule 144(k). If this proposal
is adopted, an additional 3,600,600 shares of Common Stock will become
eligible for sale to the public beginning 180 days after the date of this
Prospectus.
Stockholders of the Company will be entitled to certain piggyback and demand
registration rights with regard to 5,669,781 shares of Common Stock upon the
closing of this offering. In addition, the founders of the Company will be
entitled to certain piggyback registration rights with regard to 828,750
shares of Common Stock. By exercising such registration rights, subject to
certain limitations, such holders could cause a significant number of shares
to be registered and sold in the public market. Such sales may have an adverse
effect on the market price for the Common Stock and could impair the Company's
ability to raise capital through an offering of its equity securities. All
such rights in connection with this offering have been waived.
Prior to this offering, there has been no public market for the Common Stock
of the Company, and no predictions can be made of the effect, if any, that the
sale or availability for sale of additional shares of Common Stock, under Rule
144, pursuant to registration rights or otherwise, will have on the trading
price of the Common Stock. Nevertheless, sales of substantial amounts of such
shares in the public market, or the perception that such sales could occur,
could adversely affect the trading price of the Common Stock and could impair
the Company's future ability to raise capital through an offering of its
equity securities.
NO DIVIDENDS
The Company has not declared or paid dividends on its Common Stock since its
inception and does not intend to declare or pay any dividends to its
stockholders in the foreseeable future. See "Dividend Policy" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DILUTION
Upon completion of this offering, purchasers of Common Stock in this
offering will incur immediate dilution of $8.37 in the per share net tangible
book value of their Common Stock from the assumed initial public offering
price. See "Dilution."
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THE COMPANY
The Company was incorporated in Delaware on September 16, 1994 and commenced
operations on December 5, 1994. The Company's executive offices and research
facility are located at 76 Great Valley Parkway, Malvern, Pennsylvania 19355.
Its telephone number is (610) 651-0200, and the Internet e-mail address is
[email protected]. ViroPharma's home page on the World Wide Web can be located
at http://www.viropharma.com.
"ViroPharma" and the Company's logo are trademarks of the Company. The
Company has filed applications to register these trademarks in the United
States. All other brand names or trademarks appearing in this Prospectus are
the property of their respective owners.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby are estimated to be approximately $24,610,000 ($28,376,500 if
the Underwriters' over-allotment option is exercised in full), at an assumed
initial public offering price of $12.00 per share and after deducting
underwriting discounts and commissions and estimated offering expenses payable
by the Company.
The Company intends to use the net proceeds of this offering, along with its
currently available cash, to fund further development of pleconaril, including
approximately $18.5 million to fund the ongoing clinical trials and certain
related pre-marketing activities. The Company intends to use the balance of
the net proceeds of this offering for ongoing research and development
programs and general corporate purposes, which may include capital equipment
expenditures. The Company also expects from time to time to evaluate the
possible acquisition of products, businesses and technologies which complement
the Company's business. The Company does not currently have any
understandings, commitments or agreements with respect to any such possible
acquisitions.
The amounts actually expended for any single purpose will vary significantly
depending upon numerous factors, including the progress of the Company's
research and development programs, the results of preclinical and clinical
studies, the timing of regulatory approvals, technological advances,
determinations as to commercial potential of product candidates and the status
of competitive products. In addition, expenditures will be dependent upon the
establishment of collaborative arrangements with other companies, the
availability of financing and other factors. See "Business--Product
Development and Research."
The Company believes that the net proceeds of this offering, together with
the proceeds from the collaborative drug discovery and development agreement
with Boehringer Ingelheim, available cash, grant revenue and expected interest
income, will be adequate to fund its current and anticipated levels of
operations through mid-1998. This estimate is based on assumptions about
numerous factors, including the factors described above. In addition, future
unanticipated events may make shifts in the allocation of funds necessary or
desirable. The proceeds of this offering are not expected to be sufficient to
complete all clinical studies and other required testing for pleconaril or any
other of the Company's product candidates. Moreover, additional funding will
be required before the Company is able to generate positive cash flows from
commercial activities. The Company does not have any commitments or
arrangements to obtain any additional funds, and there can be no assurance
that required funds will be available to the Company. See "Risk Factors--
Uncertain Ability to Meet Capital Needs."
Pending the application of the proceeds of this offering, the Company
intends to invest such proceeds in short-term interest-bearing United States
government securities and in short-term, interest-bearing investment grade
securities. The Company intends to invest and use the net proceeds so as not
to be considered an investment company under the Investment Company Act of
1940.
DIVIDEND POLICY
The Company has never declared or paid dividends on its capital stock and
does not anticipate paying cash dividends in the foreseeable future. The
Company currently intends to retain any future earnings for use in the
operations, development and growth of its business.
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1996 (i) on an actual basis, assuming completion of the Reverse Stock
Split, (ii) on a pro forma basis, to reflect the Preferred Stock Conversion
and (iii) such pro forma capitalization as adjusted to give effect to the
Warrant Exercise and the sale by the Company of the 2,250,000 shares of Common
Stock offered hereby at an assumed initial public offering price of $12.00 per
share (after deducting the underwriting discounts and commissions and
estimated offering expenses payable by the Company) and the receipt and
initial application of the net proceeds of $24,610,000 therefrom, as set forth
in "Use of Proceeds." This table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and Notes thereto included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
<S> <C> <C> <C>
Long-term capital leases................ $ 144,014 $ 144,014 $ 144,014
Mandatorily redeemable convertible pre-
ferred stock(1)........................ 15,053,996 -- --
Stockholders' equity:
Preferred stock, $.001 par value,
5,000,000 shares authorized, no shares
issued and outstanding, pro forma as
adjusted.............................. -- -- --
Common Stock, par value $.002 per
share, 27,000,000 shares authorized;
901,170 shares issued and outstanding,
actual; 6,489,354 shares issued and
outstanding, pro forma; and 8,820,951
shares issued and outstanding pro
forma as adjusted(2).................. 1,802 12,978 17,642
Additional paid-in capital............. 155,430 15,198,250 39,803,586
Deferred compensation.................. (463,391) (463,391) (463,391)
Unrealized gain on investment securi-
ties.................................. 21,458 21,458 21,458
Deficit accumulated during the develop-
ment stage............................ (7,397,955) (7,397,955) (7,397,955)
----------- ----------- -----------
Total stockholders' equity (deficit)... (7,682,656) 7,371,340 31,981,340
----------- ----------- -----------
Total capitalization.................. $ 7,515,354 $ 7,515,354 $32,125,354
=========== =========== ===========
</TABLE>
- --------
(1) Prior to this offering, the Company's outstanding Redeemable Preferred
Stock consists of 675,000 shares of Series A Preferred Stock, 7,060,000
shares of Series B Preferred Stock and 3,222,222 shares of Series C
Preferred Stock. Concurrently with the closing of this offering, all
outstanding shares of Preferred Stock and all shares to be issued in the
Warrant Exercise will be converted into shares of Common Stock. See
"Description of Capital Stock."
(2) Excludes (i) 316,455 shares issuable upon exercise of options outstanding
as of June 30, 1996 at a weighted average exercise price of $0.18 per
share and (ii) shares issuable upon exercise of warrants to purchase
Series B Preferred Stock that will not be exercised in connection with the
offering but will be converted into warrants to purchase 21,675 shares of
Common Stock at an exercise price of $2.94 per share. As of September 1,
1996, there were 410,283 shares issuable upon exercise of outstanding
options at a weighted average exercise price of $0.64 per share. Includes
497,250 issued but unvested shares of Common Stock purchased by certain of
the founders of the Company. See "Management--Executive Compensation,"
"Management--Stock Option Plan," "Certain Transactions--Transactions with
Founders" and "Description of Capital Stock."
17
<PAGE>
DILUTION
Purchasers of the Common Stock offered hereby will experience an immediate
dilution in the net tangible book value of their Common Stock from the assumed
initial public offering price. The net tangible book value of the Company's
Common Stock as of June 30, 1996 was $7,371,340, or $1.14 per share. "Net
tangible book value" per share is equal to the Company's net tangible assets
(tangible assets less total liabilities) divided by the 6,489,354 shares of
the Company's Common Stock outstanding (after reflecting the Preferred Stock
Conversion). "Dilution per share" represents the difference between the
assumed initial public offering price per share of the Common Stock and the
pro forma net tangible book value per share of the Company after giving effect
to this offering. After giving effect to the Warrant Exercise and reflecting
the Preferred Stock Conversion and the sale of 2,250,000 shares of Common
Stock offered by the Company hereby at an assumed initial public offering
price of $12.00 per share (after deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company) and the
initial application of the estimated net proceeds therefrom, the pro forma net
tangible book value of the Company as of June 30, 1996 would have been
$31,981,340 or $3.63 per share. The change represents an immediate increase in
net tangible book value of 2.49 per share to existing stockholders and an
immediate dilution of $8.37 per share to new investors purchasing the shares
of Common Stock in this offering. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $12.00
Net tangible book value per share before the offering............ $1.14
Increase per share attributable to new investors................. $2.49
-----
Pro forma net tangible book value per share after the offering..... $ 3.63
------
Dilution per share to new investors................................ $ 8.37
======
</TABLE>
The following table summarizes on a pro forma basis as of June 30, 1996, the
differences between existing stockholders after giving effect to the Warrant
Exercise and reflecting the Preferred Stock Conversion and purchasers of
shares in this offering with respect to the number of shares of Common Stock
purchased from the Company, the total consideration paid and the average price
per share paid.
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)... 6,570,951 74% $14,656,225 35% $ 2.23
New investors.............. 2,250,000 26 27,000,000 65 $12.00
--------- --- ----------- ---
Total.................... 8,820,951 100% $41,656,225 100%
========= === =========== ===
</TABLE>
- --------
(1) After giving effect to the Warrant Exercise and reflecting the Preferred
Stock Conversion.
The above information excludes (i) 316,455 shares of Common Stock issuable
upon exercise of options outstanding as of June 30, 1996 at a weighted average
exercise price of $0.18 per share and (ii) shares issuable upon exercise of
warrants to purchase Series B Preferred Stock that will not be exercised in
connection with the offering but will be converted into warrants to purchase
21,675 shares of Common Stock at an exercise price of $2.94 per share. As of
September 1, 1996, there were 410,283 shares issuable upon exercise of
outstanding options at a weighted average exercise price of $0.64 per share.
The foregoing includes 497,250 issued but unvested shares of Common Stock
purchased by certain of the founders of the Company. See "Management--
Executive Compensation," "Management--Stock Option Plan," "Certain
Transactions--Transactions with Founders" and "Description of Capital Stock."
18
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below under the caption "Balance Sheet
Data" as of December 31, 1994 and 1995, and under the caption "Statement of
Operations Data" for the period from December 5, 1994 (inception) through
December 31, 1994 and the year ended December 31, 1995 are derived from
financial statements of the Company which have been audited by KPMG Peat
Marwick LLP, independent certified public accountants. The selected financial
data as of June 30, 1996 and for the six-month periods ended June 30, 1995 and
1996 are derived from unaudited financial statements. Such unaudited financial
statements include all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the information set forth herein.
Operating results for the six months ended June 30, 1996 are not necessarily
indicative of the results to be expected for the year ending December 31,
1996. The data set forth below should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations, the
Financial Statements and the Notes thereto and the other financial information
included elsewhere in this Prospectus. The Company is considered a
"development stage company" as described in Note 1 of the Company's Financial
Statements.
<TABLE>
<CAPTION>
DECEMBER 5,
1994 SIX MONTHS
(INCEPTION) ENDED
THROUGH YEAR ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, ------------------------
1994 1995 1995 1996
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Grant revenue............ $ -- $ 90,813 $ -- $ --
Operating expenses:
Research and
development........... 75,779 2,930,106 677,730 2,624,558
General and
administrative........ 243,318 1,091,299 362,928 673,719
--------- ----------- ----------- -----------
Total operating
expenses................ 319,097 4,021,405 1,040,658 3,298,277
Interest income, net..... -- 75,730 4,840 74,281
--------- ----------- ----------- -----------
Net loss................. $(319,097) $(3,854,862) $(1,035,818) $(3,223,996)
========= =========== =========== ===========
Pro forma net loss per
share(1)................ $ (.90) $ (.52)
Shares used in computing
pro forma net loss per
share(1)................ 4,304,776 6,163,767
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1994 1995 1996
--------- ----------- -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments............................. $ 22,870 $ 4,713,426 $ 8,435,802
Working capital (deficit)................ (243,172) 3,270,375 7,274,927
Total assets............................. 24,870 4,873,845 8,963,910
Long-term capital leases................. -- -- 144,014
Mandatorily redeemable convertible
preferred stock......................... 60,000 7,428,464 15,053,996
Total stockholders' equity (deficit)..... (303,172) (4,101,618) (7,682,656)
</TABLE>
- --------
(1) See Note 2 of Notes to Financial Statements.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains forward-looking statements that involve risk and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
or contribute to such differences include, but are not limited to, those
discussed in "Risk Factors."
Since inception, the Company has devoted substantially all of its resources
to its research and product development programs. ViroPharma has generated no
revenues from product sales and has been dependent upon funding primarily from
equity financing. The Company has not been profitable since inception and has
incurred a cumulative net loss of approximately $7.4 million through June 30,
1996. Losses have resulted principally from costs incurred in research and
development activities and general and administrative expenses. The Company
expects to incur additional operating losses over at least the next several
years. The Company expects such losses to increase over historical levels as
the Company's research and development expenses increase due to further
clinical trials and preclinical development of the Company's most advanced
drug candidate, pleconaril, and further research and development related to
other product candidates. The Company's ability to achieve profitability is
dependent on developing and obtaining regulatory approvals for its product
candidates, successfully commercializing such product candidates, which may
include entering into collaborative agreements for product development and
commercialization, and securing contract manufacturing services.
RESULTS OF OPERATIONS
Six months ended June 30, 1996 and June 30, 1995
The Company earned no revenues during these periods, other than net interest
income.
Research and development expenses increased to $2,624,558 for the six months
ended June 30, 1996 from $677,730 for the six months ended June 30, 1995. The
increase was principally due to clinical trials related to pleconaril and the
advancement of drug candidates for the Company's influenza and hepatitis C
programs.
General and administrative expenses increased to $673,719 for the six months
ended June 30, 1996 from $362,928 for the six months ended June 30, 1995. The
increase was principally due to increased facilities costs and salary
expenses, as well as to increased costs associated with financing transactions
and the pursuit of corporate collaborations.
The net loss increased to $3,223,996 for the six months ended June 30, 1996
from $1,035,818 for the six months ended June 30, 1995.
Year ended December 31, 1995 and period ended December 31, 1994
The Company commenced operations on December 5, 1994. Therefore, the period
ended December 31, 1994 was 26 days long. Comparisons between such period and
the complete year 1995 may not be meaningful.
Grant revenue for the year ended December 31, 1995 was $90,813. The Company
earned no revenues for the period ended December 31, 1994.
Research and development expenses increased to $2,930,106 for the year ended
December 31, 1995 from $75,779 for the period ended December 31, 1994. The
increase was due to 12 months of expenses being reflected in the latter
period, as well as expenses related to the commencement of clinical
development of pleconaril and increased spending related to the Company's drug
discovery efforts.
General and administrative expenses increased to $1,091,299 for the year
ended December 31, 1995 from $243,318 for the period ended December 31, 1994.
The increase was due to 12 months of expense being reflected
20
<PAGE>
in the latter period, as well as to increased facilities costs and costs
associated with financing transactions and the pursuit of corporate
collaborations.
Interest income aggregated $75,730 in 1995. There was no interest income in
1994.
Net loss for the year ended December 31, 1995 was $3,854,862. Net loss for
the period ended December 31, 1994 was $319,097.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception in December 1994, the Company has financed its
operations primarily through private placements of Redeemable Preferred Stock
and Common Stock totaling approximately $14.4 million. At June 30, 1996, the
Company had cash and cash equivalents and short-term investments aggregating
approximately $8.4 million.
The Company leases its corporate and research and development facilities
under an operating lease expiring in 1997. The Company has a one year renewal
option through October 1998, subject to lessor consent. If the Company does
not renew its lease upon expiration, the Company believes that it can lease
adequate facilities on terms acceptable to the Company. The Company also
leases substantially all of its equipment under two master lease agreements,
which provide access to a total of approximately $1.3 million in financing, of
which amounts aggregating approximately $650,000 are currently outstanding.
The Company is required to repay amounts outstanding under the two leases
within periods ranging from 32 and 48 months. The Company has no material
commitments for capital expenditures as of June 1996. The Company is required
to make a milestone payment to Sanofi of up to $2 million upon the earlier of
a future milestone event as defined in the agreement with Sanofi or December
1998. In addition, the Company would also be required to make certain
significant additional payments, including royalties, as defined, should
agreed-upon future milestones be attained.
The Company believes that the net proceeds of this offering, together with
the $1 million technology access fee received in August 1996 and future
proceeds from the collaborative drug discovery and development agreement with
Boehringer Ingelheim, available cash, grant revenue and expected interest
income, will be adequate to fund its current and anticipated levels of
operations through mid-1998. The Company will require additional financing for
operations and expansion of its facilities prior to achieving positive cash
flows from its commercial activities. The proceeds of this offering are not
expected to be sufficient to complete all clinical studies and other required
testing for pleconaril or any other of the Company's product candidates. To
obtain this financing, the Company may seek to access the public or private
equity markets or enter into additional arrangements with corporate
collaborators. To the extent the Company raises additional capital by issuing
equity securities, ownership dilution to existing stockholders may result.
There can be no assurance, however, that additional financing will be
available on acceptable terms from any source. See "Risk Factors--Uncertain
Ability to Meet Capital Needs," "Use of Proceeds" and "Business--Strategic
Relationships--Boehringer Ingelheim Pharmaceuticals, Inc."
Based on "change in ownership" provisions of the Tax Reform Act of 1986, net
operating loss and research and development credit carryforwards may be
subject to annual limitations that could reduce the Company's ability to
utilize these carryforwards.
NEW ACCOUNTING PRONOUNCEMENT
In October 1995, the FASB issued SFAS 123 "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 presents companies with the alternative
of retaining the current accounting for stock-based compensation or adopting a
new accounting method based on the estimated fair value of equity instruments
granted to employees during the year. Companies that do not adopt the fair
value based method of accounting will be required to adopt the disclosure
provisions of SFAS 123 for the year ending December 31, 1996. The Company will
continue applying its current accounting principles and will present the
required footnote disclosures commencing in the 1996 financial statements.
21
<PAGE>
BUSINESS
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in forward-looking statements. Factors that might cause or
contribute to such differences include, but are not limited to, those
discussed in "Risk Factors."
OVERVIEW
ViroPharma is engaged in the discovery and development of proprietary
antiviral pharmaceuticals for the treatment of diseases caused by RNA viruses.
The Company has focused its initial drug development and discovery activities
on six RNA virus diseases: viral meningitis, "summer flu," the common cold,
influenza, hepatitis C and viral pneumonia. Each year, the majority of the
world's population is afflicted by at least one of these diseases, for which
therapies are currently either inadequate or unavailable. The Company's most
advanced compound, pleconaril, previously designated VP 63843, is currently
being developed for the treatment of three of these diseases. ViroPharma has
completed a Phase IIa clinical trial which demonstrated that pleconaril is
safe and efficacious in "summer flu." The Company is conducting a Phase IIb
clinical trial with pleconaril for viral meningitis and preclinical studies
with this compound for the common cold. The Company has additional compounds
in earlier stages of development for treatment of influenza, hepatitis C and
viral pneumonia. ViroPharma believes its drug discovery and development
technologies and expertise have potential applicability to a broad range of
diseases caused by RNA viruses.
RNA viruses are responsible for the majority of human viral diseases,
causing illnesses ranging from acute and chronic ailments to fatal infections.
RNA viruses continue to emerge, spreading from rural and developing regions of
the world to urbanized centers. Despite efforts by the scientific and medical
communities to develop vaccines and pharmaceuticals to prevent and treat
certain of these diseases, medicines are currently inadequate or are not
available for the majority of RNA virus diseases. The Company believes the
significance and prevalence of RNA virus diseases, and the limited
availability and effectiveness of current antiviral therapeutics, has created
a compelling need for antiviral pharmaceuticals to treat these diseases.
DISEASES CAUSED BY RNA VIRUSES
Viruses are intracellular parasites that require a living host cell within
which to reproduce. They are composed of genetic material enclosed in a
protective protein coat. The genetic material of a virus, which may be in the
form of either deoxyribonucleic acid ("DNA") or ribonucleic acid ("RNA"), is
unique and characteristic of that virus and provides the blueprint for virus
reproduction.
There are three fundamental classes of viruses: DNA viruses, retroviruses
and RNA viruses. DNA viruses store their genetic material as DNA and replicate
their DNA in a manner similar to human cells. Retroviruses and RNA viruses
store their genetic material as RNA. Retroviruses reproduce by first
converting their RNA into DNA in infected cells, then converting this DNA back
into RNA. RNA viruses, on the other hand, have the unique ability to directly
reproduce their RNA to create new RNA virus offspring through a process known
as RNA replication. This ability to directly replicate RNA distinguishes RNA
viruses from DNA viruses, retroviruses and human cells.
Infection by viruses, and their ensuing replication, can lead to disease.
Viral epidemics, pandemics, acute outbreaks and chronic diseases continue to
cause an enormous amount of human suffering and death. DNA viruses cause
diseases such as herpes, hepatitis B and papillomas (warts). The retrovirus
HIV (human immunodeficiency virus) causes AIDS. RNA viruses, however, are
responsible for the majority of human viral disease, causing a multitude of
illnesses ranging from acute and chronic ailments to fatal infections.
22
<PAGE>
The following is a list of selected diseases caused by RNA viruses:
RNA VIRUS DISEASES
Bronchiolitis Hemorrhagic conjunctivitis
Myocarditis
Dengue fever Hemorrhagic fevers Pneumonia
Diarrhea diseases Hepatitis A, C, D, and ERabies
Ebola fever Influenza Rhinovirus common
Encephalitis Lassa fever cold
Enterovirus "summer flu" Measles Rubella
Hantavirus pulmonary syndrome Meningitis Tick fevers
Yellow fever
The medical community has attempted to address several of these diseases
with vaccines, which are prophylactic in nature and intended to prevent
disease, and antiviral pharmaceuticals, which are therapeutic in nature and
intended to treat disease. For most RNA virus diseases, however, medicines are
either inadequate or simply not available.
Vaccines are designed to prevent disease by eliciting a protective antiviral
immune response in vaccinated individuals. This response involves the
production by the body of specific antibodies and white blood cells, both of
which attempt to destroy the virus and virus-infected cells. Vaccines do not
exist for most RNA virus diseases. Of those that are available, most are
unable to effectively control disease for one or more reasons. Many viruses
constantly and rapidly change their outer surface, thereby rendering existing
vaccines obsolete. Moreover, many individuals at greatest risk for serious
disease, including the young, the elderly and the immunocompromised, fail to
respond to vaccines. Finally, existing vaccines are not readily available to
certain susceptible populations and, even when available, are often not widely
used.
Antiviral pharmaceuticals to treat RNA virus diseases are limited. While
there are, in some cases, medicines available to reduce disease symptoms,
there are few drugs to effectively treat the underlying disease. Of these,
amantadine and the related drug rimantadine are used for influenza, ribavirin
has been used for viral pneumonia due to respiratory syncytial virus ("RS
virus"), and interferon alfa ("IFN") is currently used to treat hepatitis due
to hepatitis C virus ("HCV"). Additionally, immunoglobulin products are
occasionally used for treatment of some RNA virus diseases. The Company
believes that each of these therapeutics has limited utility in its respective
indication for several reasons, including adverse side effects, limited
antiviral specificity and difficulties in drug administration.
Based on the significance and prevalence of disease associated with RNA
virus infections and the limited means to prevent or treat these diseases, the
Company believes that there is a significant market opportunity for the
development of effective therapeutics for RNA virus diseases. Moreover, the
continued emergence of RNA virus diseases and the recent spread of RNA viruses
from rural and developing regions of the world to urbanized centers
underscores the compelling need for new antiviral pharmaceuticals.
TREATING RNA VIRUS DISEASES
The RNA Virus Replication Process
Essential to the discovery and development of antiviral pharmaceuticals is
the ability to analyze the virus in a laboratory setting and to dissect the
molecular and biochemical events critical to virus replication. The
manipulation of RNA viruses and, in particular, the virus's RNA genome,
requires special techniques and skills. Historically, technical limitations
have hampered investigation of RNA virus replication. Consequently, the
scientific community's understanding of the molecular events of RNA virus
replication is incomplete. However, significant recent advancements in
biological and molecular technologies related to the manipulation of RNA and
RNA viruses have enabled the Company to pursue the discovery and development
of effective treatments for RNA virus diseases.
23
<PAGE>
The Company believes that the process of viral RNA uncoating and replication
represents an extremely attractive target for the therapeutic intervention in
disease caused by RNA viruses. For RNA viruses to cause disease, they must
replicate. This process of RNA replication is depicted in the following
diagram.
RNA Virus Replication
[The following is required for the EDGAR filing and will not appear in the
printed prospectus: This diagram depicts schematically the life cycle of a
generic RNA virus. The diagram is centered with a light gray oval figure
representing a generic cell. Overlaid on this oval figure are six arrows,
numbers 1 through 6, traversing the oval figure from the upper left to the
lower right. Preceding the first arrow numbered "1" and outside the oval
figure is a single virus particle depicted schematically as a 10-sided
icosahedral shape. Beyond arrow 1, just inside the oval figure and in
front of arrow "2" is an identical 10-sided icosahedral shaped virus.
Beyond arrow 2 and in from of arrow "3" is a vertical single helical
ribbon depicting viral RNA, at the bottom of which are several
disassembled sides of the 10-sided shape and at the top of which are
several small solid circular shapes depicting proteins attached to the
helical ribbon. Beyond arrow 3 and in front of arrow "4" is a vertical
double helical ribbon depicting two intertwined strands of viral RNA, at
the bottom of which are several small solid circular shapes depicting
proteins attached to the double helical ribbon. Beyond arrow 4 and in
front of arrow "5" is a vertical single helical ribbon depicting viral
RNA, at the bottom of which is a partially assembled 10-sided shape into
which the ribbon appears to be entering and at the top of which are
several small solid circular shapes depicting proteins attached to the
helical ribbon. Beyond arrow 5 and in from of arrow "6" near to, but
within, the lower right border of the oval cell figure are several
identical and intact 10-sided icosahedral shaped viruses. Beyond arrow "6"
are numerous identical 10-sided icosahedral shaped viruses emanating from
the lower right portion of the oval cell figure and also outside the oval
cell figure in the lower right portion of the diagram.]
WHEN AN RNA VIRUS ENTERS A CELL (1), ITS RNA IS RELEASED FROM THE VIRUS'S
COAT (2), ALLOWING THE UNIQUE MULTI-STEP PROCESS OF RNA REPLICATION TO
PROCEED (3-4), AFTER WHICH NEW RNA VIRUS OFFSPRING ARE CREATED (5) AND
SUBSEQUENTLY RELEASED FROM THE INFECTED CELL (6). EACH RNA VIRUS OFFSPRING
THAT INFECTS A NEW CELL REPEATS THIS REPLICATION PROCESS.
Inhibiting RNA virus replication can prevent, limit or stop disease. In
addition to thwarting disease, the direct inhibition of viral RNA uncoating
and replication will reduce the possibility for generation of drug-resistant
virus offspring and decrease virus transmission from infected individuals to
healthy persons. RNA replication is a complicated process involving several
viral proteins that must act together in a coordinated fashion. Due to the
nature of this process, changes or mutations in these proteins are not readily
tolerated. Consequently, viral proteins required for RNA replication are not
only specific to the virus, they are among the least variable proteins of the
virus. This is in contrast to the highly variable viral surface proteins
generally involved in immune responses to virus infections. This invariability
of the viral proteins responsible for viral RNA replication represents an
important attribute in their selection as molecular targets for antiviral drug
discovery and development.
The ViroPharma Approach
ViroPharma believes that it is the leader in RNA virology and RNA antiviral
drug discovery and development. As a result of its focus on, and expertise in,
RNA virus replication, unique molecular target selection and assay development
technologies, and its development and possession of proprietary chemical
inhibitors and its specialized chemical library, the Company believes that it
is well-positioned to develop effective antiviral pharmaceuticals for RNA
virus diseases.
While the RNA replication process is common among all RNA viruses, the
detailed molecular and biochemical mechanisms of RNA replication are currently
not fully understood. However, the Company has used its experience in RNA
virology, RNA virus uncoating and RNA replication, along with recent advances
in biological, molecular and informatics technologies, to gain an
understanding of several aspects of the RNA virus uncoating and replication
process. Company scientists have elucidated fundamental processes involved in
virus uncoating and used this knowledge to design compounds to inhibit these
processes. They have also succeeded in discovering new virus enzyme activities
that are essential to RNA replication, which are the subject of a U.S.
24
<PAGE>
patent application filed by the Company. Company scientists have further
characterized several RNA virus replication activities and used the resulting
information to develop novel drug screening assays. The Company's assays are
optimized for high sensitivity and specificity and are validated for
reproducibility. These assays are automated using state-of-the-art robotics
technologies to facilitate the high throughput screening of large chemical
libraries. Using its novel assays, the Company has discovered proprietary
small molecule compounds that inhibit the targeted virus-specific activities.
Once active compounds are identified, the Company advances such compounds to
clinical drug candidates through a process of chemical optimization. This
process involves the rapid generation of an expanded chemical analog series
based on the initial active compounds and utilizes an array of technologies
including computer-assisted pharmacophore modeling and drug design techniques,
two-dimensional and three-dimensional structure and substructure chemical
database searches and conventional medicinal chemistry, combinatorial
chemistry and automated high capacity chemical synthetic methods. The Company
then evaluates analog series in various biochemical and biological assays that
assess compound selectivity, potency, safety and bioavailability. Importantly,
the Company chemically optimizes active compounds for these four key
parameters in parallel, not sequentially. The Company believes that its
combination of chemical and biological technologies and parallel compound
optimization process allows it to accelerate drug discovery and development.
The generation of large numbers of specific chemical analogs by the Company
also enables it to rapidly expand its valuable chemical library that is biased
toward inhibitors of enzymes and activities essential to RNA replication. The
Company believes that this library provides a significant advantage in its
efforts to discover inhibitors for additional RNA virus diseases.
STRATEGY
The Company's objective is to become the leading discoverer, developer and
marketer of proprietary antiviral pharmaceuticals for RNA virus diseases. The
Company seeks to achieve this objective through the implementation of the
following strategies:
. Focus on RNA Virus Diseases. RNA viruses cause the majority of human
viral diseases, yet few effective antiviral drugs are available to
address these diseases. Based on the significance and prevalence of
disease associated with RNA viruses and the limited means to effectively
prevent or treat these diseases, the Company believes there is a
significant market opportunity for the development of effective
therapeutics for RNA virus diseases. The Company has focused its
resources to capitalize on this market opportunity.
. Broadly Apply Technological Expertise in RNA Virology. The Company has
leading expertise in RNA antiviral drug discovery, focusing on RNA
replication and involving the selection of specific molecular targets
and the development of novel drug screening assays, proprietary chemical
inhibitors and a specialized chemical library. Since RNA replication is
unique to RNA viruses, yet common to all RNA viruses, this process
provides a broadly applicable platform for drug discovery. The Company
intends to continue to expand and apply its expertise in RNA virology,
RNA replication, chemical synthesis methodologies and antiviral drug
design.
. Conduct Parallel Drug Discovery Assessments. The key parameters in the
drug discovery process are selectivity, potency, safety and
bioavailability. The Company accelerates and enhances the efficiency of
its drug discovery programs by simultaneously optimizing chemical
compounds for each of these parameters during the drug discovery
process.
. Pursue Indications for Rapid Demonstration of Efficacy. In order to
expedite drug development, the Company initially targets disease
indications based upon the likelihood for rapid demonstration of
efficacy in clinical trials. The Company then pursues follow-on clinical
development for expanded disease indications.
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. Pursue Strategic Relationships by Leveraging RNA Virology Expertise. The
Company leverages its leadership position in RNA virus antiviral drug
discovery and development through strategic relationships with
pharmaceutical companies, specialized technology companies and academic
institutions. With these relationships, the Company enhances its drug
discovery capabilities and in-licensing opportunities and facilitates
the commercialization of its potential products.
PRODUCT DEVELOPMENT AND RESEARCH
The Company has focused its initial drug discovery and development
activities on six RNA virus diseases: viral meningitis, "summer flu," the
common cold, influenza, hepatitis C and viral pneumonia. The Company has drug
candidates in various stages of research and development for each of these RNA
virus diseases. The following chart sets forth the target disease indications
and the status of the Company's lead product candidates:
<TABLE>
<CAPTION>
DISEASE INDICATION PRODUCT CANDIDATE DEVELOPMENT STATUS(1)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Viral Men-
ingitis Pleconaril (oral) Phase IIb clinical trial commenced June 1996
"Summer Pleconaril (oral) Phase IIa clinical trial completed April 1996;
Flu" Phase IIb clinical trial anticipated late 1997
Common Cold Pleconaril (intranasal) Preclinical; IND filing anticipated late 1997
Influenza VP 14221 series Preclinical safety and pharmacokinetics studies
Hepatitis C VP 31593 series Chemical optimization
Viral Pneu-
monia VP 36676 series Research
</TABLE>
--------
(1) For a discussion of preclinical testing and of human clinical trials,
see "--Government Regulation."
The Company's most advanced compound, pleconaril, is a potent, broad
spectrum, orally active inhibitor of enteroviruses and rhinoviruses.
Enteroviruses and rhinoviruses are closely related members of a large, very
prevalent group of RNA viruses that are responsible for widespread human
disease. According to the Centers for Disease Control (the "CDC"), there are
10 to 15 million enterovirus infections every year in the United States.
Enteroviruses cause viral meningitis, "summer flu," encephalitis, myocarditis,
pericarditis, hand-foot-and-mouth disease, herpangina, otitis media and
perinatal enteroviral disease. Rhinoviruses are responsible for up to 50% of
all respiratory illnesses and are the leading cause of the common cold.
The Company is developing pleconaril for three indications: viral
meningitis, "summer flu" and the common cold. While antibiotics are commonly
prescribed by physicians to patients with these diseases, they are ineffective
at treating these virus infections. Prescription and over-the-counter cough
and cold remedies, analgesics and antipyretics are also used to reduce
symptoms of the "summer flu" and common cold, but do not treat the underlying
diseases. Currently, there are no antiviral therapies available for any of the
diseases caused by enteroviruses or rhinoviruses.
ViroPharma scientists have demonstrated that pleconaril inhibits enterovirus
and rhinovirus replication by a novel, virus-specific mode of action. The
compound binds to a specific site inside the coat protein of the virus,
thereby preventing the release of the viral RNA inside the cell and blocking
the initiation of the RNA replication process. In preclinical studies
conducted by the Company, pleconaril was shown to effectively inhibit the cell
culture replication of 96% of the rhinoviruses and enteroviruses isolated from
332 human patients. The patient population from which these viruses were
isolated exhibited the complete range of diseases caused by these viruses,
including a number of fatal infections. Moreover, orally administered
pleconaril protected mice from lethal infection by enteroviruses in three
distinct animal model systems. Based on these results, the Company believes
that pleconaril will be effective against a broad spectrum of rhinoviruses and
enteroviruses. There can be no assurance that pleconaril will be clinically
efficacious against diseases caused by these viruses. See "Risk Factors--
Uncertainty Regarding Clinical Trials."
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<PAGE>
In Phase I single ascending dose studies with a capsule formulation of
pleconaril, plasma concentrations of drug increased proportionally to the oral
dose administered up to the highest dose tested (1000 mg). Maximum drug plasma
levels 20 times that required to inhibit the replication of the majority of
the clinical virus isolates referred to above were achieved with a single 200
mg dose. In Phase I multidose studies conducted by the Company, doses up to
400 mg administered three times per day for seven consecutive days were well-
tolerated by all subjects in the study. No serious adverse events attributable
to the drug were observed in the 50 subjects who received pleconaril during
the course of these Phase I studies.
The Company has developed an oral liquid formulation of pleconaril, which
the Company has demonstrated is bioequivalent to the capsule formulation used
in Phase I studies. The liquid formulation is self-preserving, stable and
contains only GRAS (Generally Regarded As Safe) ingredients. This formulation
provides considerable flexibility in dosing and will be used in clinical
trials for both the viral meningitis and "summer flu" indications. The Company
is also developing an intranasal formulation of pleconaril for use in the
common cold indication. Currently, the Company is exploring delivery systems
for its intranasal formulation.
The Company has acquired exclusive development and marketing rights in the
United States and Canada and certain patent rights for pleconaril, previously
designated VP 63843, from Sanofi. Pleconaril was discovered at Sanofi by
scientists now with ViroPharma. See "--Strategic Relationships--Sanofi S.A."
and "--Patents." Pleconaril has been approved as a generic name for the
Company's compound VP 63843 by the United States Names Council (USAN) and is
awaiting final approval from the World Health Organization ("WHO").
Viral Meningitis
Infection of the central nervous system by enteroviruses can cause
meningitis, which is characterized by a severe headache, stiffness of the neck
or back, fever, nausea and malaise. The disease is typically severe and
requires emergency medical care. The disease occasionally progresses to
serious neurologic sequelae, particularly among infants infected before age
one year. There is currently no antiviral therapy for viral meningitis.
In order to establish the incidence and clinical course of enteroviral
meningitis and assess potential clinical endpoints for future drug efficacy
studies, the Company conducted an Adult Viral Meningitis Observational Study
at three medical centers (the University of Colorado, the University of
Pennsylvania and the University of Virginia) during the 1995 summer
enterovirus season. The results of this study demonstrated the severity and
duration of the illness. Adults presenting at emergency rooms complaining of
severe headaches were confirmed to be enterovirus-infected by detection of
viral RNA in their cerebrospinal fluid. Approximately 80% of these
enterovirus-infected patients required hospitalization, with an average stay
of four days. Patients were unable to resume full normal activities for an
average of 16 days. All subjects received some form of analgesic (70% received
a narcotic) for an average of seven days to manage their severe headache pain.
From this study, the Company estimates that 500,000 Americans contract
enteroviral meningitis annually.
Based on the results of two Phase I studies and the Phase IIa study for
enterovirus disease described below, the Company is currently evaluating the
oral liquid formulation of pleconaril in an international multi-center, double
blind, placebo controlled Phase IIb trial for treatment of viral meningitis.
The Company initiated this study at sites in the United States in June 1996
and anticipates initiating the study in Australia and South Africa in November
1996. There can be no assurance that this trial will be successfully completed
or completed in a timely manner. See "Risk Factors--Absence of Products;
Product Development Risks," "Risk Factors--Dependence on Most Advanced Drug
Candidate" and "Risk Factors--Uncertainty Regarding Clinical Trials."
"Summer Flu"
The "summer flu" is an upper respiratory illness caused by enteroviruses and
characterized initially by a sore throat and cough, followed by a general
influenza-like syndrome. While this disease occurs throughout the year, it is
most prevalent in the summer. The clinical illness can persist for several
weeks and typically results in
27
<PAGE>
a physician visit. According to the CDC, there are an estimated 10 to 15
million cases of enterovirus infection each year in the United States, many of
which result in "summer flu." There is currently no antiviral treatment for
the enterovirus "summer flu."
During the spring of 1996, the Company conducted a Phase IIa Enterovirus
Challenge Study with pleconaril. In this double blind, placebo controlled
"summer flu" model study, the oral capsule formulation of pleconaril
demonstrated clinical effectiveness. Eight hours after the randomized
administration of either placebo or pleconaril, 33 volunteers were infected
with the enterovirus coxsackievirus A21. Subjects were then administered
either placebo or a 200 mg dose of pleconaril twice daily for seven days.
Placebo-treated subjects developed notable cold symptoms, while pleconaril-
treated volunteers showed pronounced and clinically significant reductions in
disease measures, including symptoms and virus load. Assessment of clinical
disease by five measures (subject and physician rating of disease symptoms,
nasal mucus production, fever and virus load in nasal secretions) showed, in
all cases, a significant reduction in the pleconaril-treated group. Depicted
in the graph below are the results of these disease measures for both the
placebo-treated (light bars) and pleconaril-treated (dark bars) subjects.
PHASE IIA STUDY-DISEASE MEASURE REDUCTIONS
[The following is required for the EDGAR filing and will not appear in the
printed prospectus: This histogram-format graph contains five two-column
sets along the horizontal axis. The left column of each set, depicted in
light gray, represents disease measure data for test subjects from the
"Placebo"-treated group: the right column of each set depicted in dark
gray, represents disease measure data for test subjects from the
"Pleconaril"-treated group. Below the column sets are the following five
captions: "Subject Rating", "Physician Rating", "Mucus Weight", "Fever"
and "Virus Load". The vertical axis is indicated at "% of Subjects
Exceeding Disease Measure Threshold" and ranges from 0% to 100%. These
Disease Measure Thresholds are defined in the legend to the graph as
follows: "Subject Rating Greater than or Equal to 5 (Scale: 0-10),
Physician Rating Greater than or Equal to 10 (Scale: 0-33), Mucus Weight
Greater than or Equal to 10g (Range: 0-54g), Fever Greater than or Equal
to 100 degrees F (Range: normal - 102.3 degrees F), Virus Load Greater
than or Equal to 4 log\10\ (Range: 0-6.3 log\10\)." The values for the
"Subject Rating" columns are 67% and 13% for the Placebo and Pleconaril
groups, respectively. The values for the "Physician Rating" columns are
53% and 0% for the Placebo and Pleconaril groups, respectively. The values
for the "Mucus Weight" columns are 67% and 0% for the Placebo and
Pleconaril groups, respectively. The values for the "Fever" columns are
40% and 7% for the Placebo and Pleconaril groups, respectively. The values
for the "Virus Load" columns are 93% and 13% for the Placebo and
Pleconaril groups, respectively.]
The Company anticipates advancing the pleconaril oral liquid formulation
into a Phase IIb multicenter, placebo controlled, dose ranging clinical
efficacy trial for the "summer flu" indication in the second half of 1997.
There can be no assurance that this trial will be initiated, successfully
completed or completed in a timely manner. See "Risk Factors--Absence of
Products; Product Development Risks," "Risk Factors--Dependence on Most
Advanced Drug Candidate" and "Risk Factors--Uncertainty Regarding Clinical
Trials."
Common Cold
Rhinoviruses are the leading cause of the common cold. Many people
experience two or three colds per year with the accompanying symptoms of
sneezing, nasal obstruction, nasal discharge, headache and general malaise.
The median duration of illness is seven days, with symptoms persisting for two
weeks in approximately 25% of persons. Complications associated with
rhinovirus infections include otitis media, pneumonia and asthmatic
exacerbations resulting in serious respiratory distress. Although there are
cold remedies, analgesics and antipyretics that may reduce cold symptoms,
there is no antiviral therapeutic to treat the common cold.
The Company's clinical development plan for the intranasal formulation of
pleconaril contemplates initially treating the common cold in patients with
asthma. This strategy provides an opportunity for both prophylactic and
therapeutic dosing in this population. Should the product be approved for use
in this patient population, the
28
<PAGE>
Company would expect to expand clinical development to include the general
population. The Company plans to conduct a preclinical nasal irritation study
and select a manufacturer for the intranasal formulation of pleconaril in
1997. Subsequent thereto, the Company anticipates filing an Investigational
New Drug ("IND") application for the intranasal formulation of pleconaril for
the common cold indication in late 1997. There can be no assurance that these
activities will be initiated, successfully completed or completed in a timely
manner. See "Risk Factors--Absence of Products; Product Development Risks,"
"Risk Factors--Dependence on Most Advanced Drug Candidate" and "Risk Factors--
Uncertainty Regarding Clinical Trials."
lnfluenza
Influenza virus is a major cause of human illness. In the United States,
approximately 10% to 20% of the population is infected with the influenza
virus each year. This disease is characterized by the sudden onset of
headache, chills and a dry cough, which is rapidly followed by fever,
significant myalgias and malaise. Fever and upper respiratory tract symptoms
generally last for three to five days, while the cough and weakness persist
for an additional one to two weeks. Influenza can also be fatal. According to
the WHO, approximately 20,000 to 40,000 deaths occur each year in the United
States as a result of influenza. The very young, elderly and
immunocompromised, and those with medical conditions such as cardiovascular
disease, pulmonary disease and pregnancy, are at greatest risk for serious or
fatal complications associated with influenza virus infections. The National
Science and Technology Council currently estimates that the direct medical
costs due to influenza in the United States are $5 billion per year.
Immunization for influenza has demonstrated only limited success in
controlling the disease. Due to the highly variable nature of the influenza
virus surface proteins, vaccines used one year are ineffective and obsolete
the next. New vaccines with components predicted to be important in the next
year's influenza season must be developed, manufactured and administered each
year. Even when forecasts result in vaccines with components closely matching
that year's actual circulating influenza virus strain, the immunity induced by
these vaccines is incomplete and short-lived. Reinfection with the same virus
strain or a variant strain can occur and result in disease in previously
immunized individuals. Finally, compliance with national immunization
campaigns has generally been insufficient to prevent epidemics.
Current drugs approved for use in the prevention and treatment of influenza
include amantadine and its closely related analog, rimantadine. Both drugs are
associated with certain central nervous system and gastrointestinal side
effects. In addition, treated individuals can produce drug-resistant virus and
transmit infection to other persons with whom they come in contact.
The Company's principal molecular target in its influenza virus program is
the viral RNA transcriptase complex, which is required by the virus for RNA
replication. The Company has developed a quantitative high throughput drug
screening assay that simultaneously measures several essential virus-encoded
replication activities. Using this assay, ViroPharma scientists have
discovered several specific inhibitors of influenza virus replication. The
Company has applied its chemical optimization process to establish structure-
activity relationships for these inhibitors with respect to potency and
selectivity. The Company's preclinical acute safety studies conducted to date
indicate that several of its lead compounds, currently designated the VP 14221
Series, are well tolerated. The Company has also commenced bioavailability
studies on this series. In addition, ViroPharma has filed two patent
applications related to its active influenza virus compounds and is preparing
additional patent applications for influenza virus compounds. There can be no
assurance that clinical trials for this compound series will be initiated or,
if initiated, will lead to a determination that the compound is safe and
efficacious. No assurance can be given that such patents will issue. See "Risk
Factors--Absence of Products; Product Developments Risks," "Risk Factors--
Uncertainty Regarding Clinical Trials," "Risk Factors--Uncertain Ability to
Protect Patents and Proprietary Technology and Information" and "--Patents."
Hepatitis C
HCV, first identified in 1989, is recognized as a major cause of chronic
hepatitis worldwide. According to the CDC, there are currently approximately
3.5 million HCV infected individuals in the United States, with
29
<PAGE>
150,000 new cases identified each year. The WHO estimates that an additional
10 million individuals are infected with HCV in Europe and a total of 100
million people are infected worldwide. Populations in some geographic areas,
such as Japan and Egypt, have particularly high rates of infection, ranging
from 2% to 15%. Approximately 80% of HCV infected persons will develop chronic
hepatitis, of which 20% will progress to liver cirrhosis. Chronic HCV
infection can also lead to the development of hepatocellular carcinoma and
liver failure.
There is currently no vaccine for HCV. HCV is an immunologically diverse
virus, with many naturally occurring variants in circulation. Such diversity,
in combination with HCV's ability to change its surface proteins, may
represent the mechanism by which the virus escapes attack by the immune system
and establishes persistent infections.
IFN is currently the only approved drug in the United States for treatment
of hepatitis due to HCV. While IFN treatment has been reported to improve
serum liver enzyme response in 20% to 40% of patients, the remainder do not
respond to IFN treatment. For patients who do respond, a sustained improvement
of liver function reportedly is seen in only 10% to 20% of patients; the
majority of patients relapse upon cessation of IFN treatment. Thus, while IFN
represents the first treatment for chronic hepatitis C, its effectiveness is
limited and its cure rate is low. Nevertheless, the Company estimates the
current market for IFN use in the treatment of hepatitis C to be over $1
billion worldwide.
The Company focuses on several key enzyme targets involved in the HCV RNA
replication process. Company scientists have discovered several key enzyme
activities associated with particular HCV proteins. These activities have been
characterized and used to establish validated high throughput assays. The HCV
RNA helicase activity represents one such target. As a result of screening
compounds in the HCV RNA helicase assay, the Company has identified several
active and selective compounds, currently designated the VP 31593 Series, and
has begun chemical optimization on such compounds. Based on its RNA helicase-
related technology, the Company has established a collaborative drug discovery
and development agreement with Boehringer Ingelheim. The Company is also
developing assays for additional HCV molecular targets. The Company has filed
two patent applications related to the HCV inhibitor compound series and
anticipates that it will file several additional patent applications within
the next year. No assurance can be given that such patents will issue. See
"Risk Factors--Dependence on Corporate Collaborations; Potential Need for
Additional Collaborators," "Risk Factors--Uncertain Ability to Protect Patents
and Proprietary Technology and Information," "--Strategic Relationships--
Boehringer Ingelheim Pharmaceuticals, Inc." and "--Patents."
Viral Pneumonia
RS virus is the major pediatric viral respiratory tract pathogen, causing
pneumonia and bronchiolitis in infants and young children. During seasonal
epidemics, approximately 250,000 infants contract RS virus pneumonia, and up
to 35% are hospitalized. Of those hospitalized, mortality rates of up to 5%
have been reported. Children with underlying conditions such as prematurity,
congenital heart disease, bronchopulmonary dysplasia and various congenital or
acquired immunodeficiency syndromes are at greatest risk of serious RS virus
morbidity and mortality. RS virus is also implicated as a major cause of
mortality in the elderly.
Vaccines are not currently available for prevention of RS virus disease.
Recently, the prophylactic use of an intravenous hyperimmune globulin infusion
was approved for RS virus disease in certain high risk infants. Ribavirin,
administered by aerosol to minimize the drug's adverse effects, is generally
reserved for only the most serious cases of RS virus pneumonia and
bronchiolitis. In both cases, drug administration can be difficult and
inconvenient in young patients.
The Company has developed a high throughput drug screening assay for RS
virus replication. Company scientists have discovered several inhibitory
compounds, currently designated the VP 36676 Series, with high potency and
selectivity in initial profiling evaluations. Based on these discoveries, the
Company intends to commence chemical optimization in late 1996. There can be
no assurance that such chemical optimization will
30
<PAGE>
be initiated, successfully completed or completed in a timely manner. See
"Risk Factors--Absence of Products; Product Development Risks," "Risk
Factors--Dependence on Most Advanced Drug Candidate" and "Risk Factors--
Uncertainty Regarding Clinical Trials."
Other Potential RNA Virus Disease Targets
The Company believes that its drug discovery technologies and development
expertise are potentially applicable to a broad range of RNA virus diseases.
The Company also believes that certain RNA virus diseases represent immediate
extensions of the Company's current research and development programs. In
addition to viral meningitis and "summer flu," enteroviruses cause a broad
range of diseases for which the Company's most advanced drug candidate,
pleconaril, may be effective. Of these, the Company is currently considering
exploratory clinical trials for pleconaril for hand-foot-and-mouth disease,
enterovirus neonatal sepsis and persistent meningoencephalitis in antibody-
deficient individuals. There can be no assurance that the Company will pursue
one or more of these indications or, if the Company does pursue one or more of
these indications, that the Company will be able to successfully identify drug
development candidates. See "Risk Factors--Absence of Products; Product
Development Risks" and "Risk Factors--Uncertainty Regarding Clinical Trials."
Similarly, the Company's lead anti-influenza compound series acts by a
virus-specific mechanism that may make it potentially applicable to a large
family of viruses called bunyaviruses. Bunyaviruses cause widespread disease
globally including encephalitis, hemorrhagic fevers and the recently
identified hantavirus pulmonary syndrome. In the midwestern United States
alone, there are approximately 300,000 infections of La Crosse encephalitis
virus annually resulting in approximately 900 deaths. In Asia and Eastern
Europe, a bunyavirus called hantavirus is responsible for Korean hemorrhagic
fever, a serious influenza-like illness in which approximately 33% of the
affected individuals develop hemorrhagic disease and 10% die. In 1993, in the
southwest United States, a new hantavirus emerged that causes hantavirus
pulmonary syndrome, a serious respiratory disease that is fatal in
approximately 50% of cases. This new virus has now been detected in more than
20 states in the United States and has recently appeared in Argentina, Brazil
and Canada.
In addition, assays and inhibitor compounds derived from the Company's HCV
program may accelerate antiviral drug discovery for the related virus group
called flaviviruses. There are 38 flaviviruses associated with human disease,
including the dengue fever viruses, yellow fever virus and Japanese
encephalitis virus. Importantly, the epidemiology of these diseases is
changing. For example, with global urbanization, the incidence of dengue fever
has increased dramatically. Dengue fever viruses typically cause a severe
influenza-like illness and, in a more serious form, can cause a fatal
hemorrhagic disease. Prior to 1970, only nine countries reported outbreaks of
fatal dengue hemorrhagic fever. Presently, at least 38 countries have reported
incidences of this serious form of dengue fever virus disease. The WHO
estimates that there are 20 million cases of dengue fever each year, of which
500,000 require hospitalization.
There are currently no approved antiviral pharmaceuticals for any of the
diseases mentioned above.
STRATEGIC RELATIONSHIPS
ViroPharma pursues strategic relationships by leveraging its RNA virology
expertise, while seeking to maintain independence and flexibility in the
development and commercialization of its products. The Company has entered
into several key development and licensing agreements and research
collaborations and continues to seek opportunities to enhance its ability to
discover, develop and commercialize RNA antiviral drugs.
Currently, the Company is a party to a licensing and co-marketing agreement
with one multinational pharmaceutical company, a drug discovery and
development agreement with another multinational pharmaceutical company and
several licensing and collaborative agreements with various pharmaceutical and
technology companies and academic institutions for certain biological and
chemical technologies. From time to time, the Company engages in discussions
regarding additional strategic relationships. Currently, the Company does not
have any understandings, agreements or commitments to enter into any
additional strategic relationships.
31
<PAGE>
Sanofi S.A.
In December 1995, the Company entered into an agreement with Sanofi under
which it received exclusive rights to develop and market all products relating
to pleconaril, previously designated VP 63843, and related compounds for use
in enterovirus and rhinovirus disease indications in the United States and
Canada (and a right of first refusal in respect of any other indications). The
Company's rights include rights to use all of Sanofi's patents, know-how and
trademarks relating to pleconaril. The Company paid Sanofi a licensing fee of
$1,000,000 in February 1996 and is obligated to make a milestone payment of up
to $2,000,000 upon the earlier of enrollment of the first patient in a Phase
III trial or December 22, 1998. In addition, the Company is required to make
milestone payments upon the achievement of certain other development
milestones and royalty payments on any sales of products developed under the
agreement in the United States and Canada. Sanofi is required to pay the
Company royalties on sales in all other territories of the world and must
reimburse certain of the milestone fees previously paid by the Company upon
submission of pleconaril for regulatory approval in Japan. See "--Patents."
Upon the completion of data analysis from the Company's Phase IIb trials,
Sanofi has the option to co-develop the drug in the European Union. If Sanofi
chooses to co-develop, Sanofi must make certain royalty payments to the
Company based on sales in the European Union. If Sanofi does not choose to co-
develop, it must make royalty payments to the Company based on such sales at a
higher royalty rate and will be required to reimburse a percentage of all
previously paid milestone fees and reduce future milestone fees by the same
percentage.
The Sanofi agreement terminates on the later of the expiration of the last
patent on pleconaril or any related drug in the United States or Canada or ten
years following the commencement of the Company's sale of the drug in the
United States or Canada, or earlier under certain circumstances. The term
automatically renews for successive five year terms unless six months' prior
written notice of termination is given by either party. Pursuant to the
agreement, the Company is required to purchase its entire supply of pleconaril
drug substance from Sanofi. The Company has the right to manufacture, or
contract with third parties to manufacture, any drug product derived from the
pleconaril drug substance. See "--Manufacturing."
Boehringer Ingelheim Pharmaceuticals, Inc.
In July 1996, the Company entered into a collaborative drug discovery and
development agreement with Boehringer Ingelheim for one hepatitis C target
identified by ViroPharma. Under this agreement, the Company granted to
Boehringer Ingelheim the exclusive worldwide rights to develop and
commercialize compounds discovered under the agreement. In return, Boehringer
Ingelheim paid a technology access fee of $1,000,000 to the Company and is
required to make research and milestone payments to the Company in connection
with the Company's transfer of HCV screening and assay technology and at
various stages in the development of compounds under this agreement. In
addition, Boehringer Ingelheim is required to make royalty payments to the
Company on sales of products developed and marketed under this agreement. The
term of the agreement is two years.
Other Collaborative Agreements
The Company is a party to collaborative drug discovery agreements with
various pharmaceutical and technology companies, including Chiroscience Ltd.
and NPS Pharmaceuticals, Inc. Generally, under these agreements, the
collaborators make available enabling technologies and compounds from their
chemical libraries, and ViroPharma applies such technology and compounds to
RNA virus diseases using the Company's proprietary RNA replication assays. If
a successful drug is discovered, these agreements typically provide for good
faith negotiations to establish the terms and conditions of a mutually
acceptable collaboration agreement. Generally, any such resulting
collaborative agreement will base the economic benefits to the parties upon
the relative contribution by each party to a drug's discovery and development.
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<PAGE>
The Company has established material transfer and licensing agreements and
research collaborations with academic institutions and their affiliates,
including the Academy of Sciences of the Czech Republic, Northwestern
University, Pennsylvania State University, Renssalear Polytechnic Institute,
the University of Florida and Washington University. Generally, these
agreements provide for the licensing to the Company of materials for either
(i) an initial fee and certain other fees payable by the Company, with no
future commercial rights for the institution or (ii) an initial fee payable by
the Company and certain rights to negotiate collaborative agreements for drug
development and commercialization.
PATENTS
ViroPharma believes that patent protection and trade secret protection are
important to its business and that the Company's future will depend, in part,
on its ability to maintain its technology licenses, maintain trade secret
protection, obtain patents and operate without infringing the proprietary
rights of others. The Company currently has filed with the PTO a patent
application for technology for identifying inhibitors of RNA viruses, two
patent applications covering compounds active against HCV and two patent
applications covering compounds active against influenza viruses. The Company
has also obtained a license from Sanofi, which grants the Company exclusive
rights under three issued United States patents and two related Canadian
patent applications to develop, manufacture and market antiviral compounds in
the United States and Canada. Pleconaril, which is currently in clinical
trials, is covered by one of the licensed United States patents, which expires
in 2012, and one of the licensed Canadian patent applications.
As patent applications in the United States are maintained in secrecy until
patents issue and as publication of discoveries in the scientific or patent
literature often lag behind the actual discoveries, the Company cannot be
certain that it was the first to make the inventions covered by each of its
pending patent applications or that it was the first to file patent
applications for such inventions. Furthermore, the patent positions of
biotechnology and pharmaceutical companies are highly uncertain and involve
complex legal and factual questions, and, therefore, the breadth of claims
allowed in biotechnology and pharmaceutical patents or their enforceability
cannot be predicted. There can be no assurance that patents will issue from
any of the Company's patent applications or, should patents issue, that the
Company will be provided with adequate protection against potentially
competitive products. Furthermore, there can be no assurance that should
patents issue, they will be of commercial value to the Company, or that
competitors will not successfully challenge the Company's patents or
circumvent the Company's patent position. In the absence of adequate patent
protection, the Company's business may be adversely affected by competitors
who develop comparable technology or products.
Moreover, pursuant to the terms of the Uruguay Round Agreements Act, patents
filed on or after June 8, 1995 have a term of twenty years from the date of
such filing, irrespective of the period of time it may take for such patent to
ultimately issue. This may shorten the period of patent protection afforded to
the Company's products as patent applications in the biopharmaceutical sector
often take considerable time to issue. Under the Drug Price Competition and
Patent Term Restoration Act of 1984, a patent which claims a product, use or
method of manufacture covering drugs and certain other products may be
extended for up to five years to compensate the patent holder for a portion of
the time required for FDA review of the product. This law also establishes a
period of time, following NDA approval, during which the FDA may not accept or
approve applications for certain similar or identical drugs from other
sponsors unless those sponsors provide their own safety and effectiveness
data. There can be no assurance that the Company will be able to take
advantage of either the patent term extension or marketing exclusivity
provisions of this law.
In order to protect the confidentiality of the Company's technology,
including trade secrets and know-how and other propietary technical and
business information, the Company requires all of its employees, consultants,
advisors and collaborators to enter into confidentiality agreements that
prohibit the use or disclosure of information that is deemed confidential. The
agreements also oblige the Company's employees, consultants, advisors and
collaborators to assign to the Company ideas, developments, discoveries and
inventions made by such persons in connection with their work with the
Company. There can be no assurance that confidentiality will be maintained or
disclosure prevented by these agreements or that the Company's proprietary
information
33
<PAGE>
or intellectual property will be protected thereby or that others will not
independently develop substantially equivalent proprietary information or
intellectual property.
The pharmaceutical industry is highly competitive and patents have been
applied for by, and issued to, other parties relating to products competitive
with those being developed by the Company. Therefore, the Company's drug
candidates may give rise to claims that they infringe the patents or
proprietary rights of other parties existing now and in the future.
Furthermore, to the extent that ViroPharma or its consultants or research
collaborators use intellectual property owned by others in work performed for
the Company, disputes may also arise as to the rights in such intellectual
property or in related or resulting know-how and inventions. An adverse claim
could subject the Company to significant liabilities to such other parties
and/or require disputed rights to be licensed from such other parties. There
can be no assurance that any license required under any such patents or
proprietary rights would be made available on terms acceptable to the Company,
if at all. If the Company does not obtain such licenses, it may encounter
delays in product market introductions, or may find that the development,
manufacture or sale of products requiring such licenses may be precluded. In
addition, the Company could incur substantial costs in defending itself in
suits brought against it based on such patents or proprietary rights, or in
suits by the Company asserting its patent or proprietary rights against
another party, even if the outcome is not adverse to the Company. See "Risk
Factors--Uncertain Ability to Protect Patents and Proprietary Technology and
Information."
MANUFACTURING
The Company does not currently have manufacturing capabilities, nor does the
Company intend to develop such capabilities for any products in the near
future. The Company believes that internal manufacturing capabilities will not
be necessary to successfully commercialize its products.
Pleconaril drug substance is prepared from readily available materials using
well-established synthetic processes. Technology involved in the production of
pleconaril is proprietary and covered by a patent licensed to the Company by
Sanofi. The Company has an agreement with Sanofi for the supply of pleconaril
drug substance for clinical trials. Sanofi is required to supply the Company's
needs at cost during drug development and at cost plus a reasonable mark-up
for any commercial sales in the United States and Canada. The Company is
obligated to purchase pleconaril drug substance exclusively from Sanofi. In
the event that Sanofi is unable to satisfy the Company's requirements and the
Company is required to find an additional or alternative source, there may be
additional cost and delay in product development or commercialization. The
Company anticipates that its current supply of pleconaril drug substance will
be sufficient to complete its planned Phase II and III clinical trials for
viral meningitis and its planned Phase II clinical trials for "summer flu."
The Company believes that it will be able to obtain drug substance from Sanofi
and, if necessary, other manufacturers, for the production of pleconaril drug
product on terms acceptable to the Company. The Company intends to contract
third party manufacturers for the preparation of other compounds and drug
substances and products for preclinical research and commercial production.
See "Risk Factors--Absence of Manufacturing Capabilities" and "--Strategic
Relationships--Sanofi S.A."
The Company is currently negotiating with several contractors for the
commercial manufacture of the liquid formulation of pleconaril drug product.
The Company has established quality control guidelines, which require that
third party manufacturers under contract produce the drug product in
accordance with the FDA's GMP requirements.
The Company maintains confidentiality agreements with potential and existing
manufacturers in order to protect its proprietary rights related to
pleconaril.
MARKETING
ViroPharma does not currently have a sales and marketing organization. Under
its agreement with Sanofi, the Company has the right to market and sell
pleconaril for all enterovirus and rhinovirus indications in the
34
<PAGE>
United States and Canada. Because patients with viral meningitis typically
present in a hospital emergency room setting, the Company is contemplating
establishing a focused sales force to service this concentrated, hospital-
based market. The success and commercialization of the Company's other
potential products will be dependent, in part, upon the ability of the Company
to maintain its existing arrangement with Boehringer Ingelheim, which governs
marketing of the Company's proposed product for hepatitis C, and to enter into
additional collaborative agreements for other potential products. The Company
presently intends to co-market and co-promote products developed for the
"summer flu" and the common cold indications in the United States and Canada,
if and when such products are approved by regulatory agencies. There can be no
assurance that any such marketing arrangements will be available on terms
acceptable to the Company, if at all, that such third parties would perform
adequately their obligations as expected, or that any revenue would be derived
from such arrangements. See "Risk Factors--Absence of Marketing and Sales
Capability" and "--Strategic Relationships."
GOVERNMENT REGULATION
Regulation by governmental authorities in the United States and foreign
countries is a significant factor in the Company's ongoing research and
product development activities and in the manufacturing and marketing of the
Company's drug candidates. All of the Company's products will require
regulatory approval by governmental agencies, principally the FDA, prior to
commercialization. In particular, therapeutic products for human use are
subject to rigorous preclinical and clinical testing and other approval
requirements by the FDA and similar health authorities in foreign countries.
Various federal statutes and regulations also govern or influence the
manufacturing, safety, labeling, storage, recordkeeping and marketing of such
products. The process of obtaining these approvals and the subsequent
compliance with appropriate statutes and regulations require the expenditure
of substantial resources. Any failure by the Company or its collaborators,
licensors or licensees to obtain, or any delay in obtaining, regulatory
approval could adversely affect the marketing of products then being developed
by the Company and its ability to receive product or royalty revenues.
The steps required before a new drug may be commercially distributed in the
United States, include (i) conducting appropriate preclinical laboratory and
animal tests, (ii) submitting to the FDA an IND application which must be
approved before clinical trials may commence, (iii) conducting controlled
human clinical trials that establish the safety and efficacy of the drug
product, (iv) filing a New Drug Application (an "NDA") with the FDA and (v)
obtaining FDA approval of the NDA prior to any commercial sale or shipment of
the drug. This process can take a number of years and involve the expenditure
of substantial resources. In addition to obtaining FDA approval for each
indication to be treated with each product, each domestic drug manufacturing
establishment must register with the FDA, list its drug products with the FDA,
comply with GMP requirements and be subject to inspection by the FDA.
Moreover, the submission of applications for approval may require additional
time to complete manufacturing stability studies. Foreign manufacturing
establishments distributing drugs in the United States also must comply with
GMP requirements and list their products with the FDA. They are subject to
periodic inspection by the FDA or by local authorities under agreement with
the FDA. See "Risk Factors--Government Regulation; No Assurance of Regulatory
Approval."
Upon approval in the United States, a drug may only be marketed for the
approved indications in the approved dosage forms and dosages. The FDA also
may require post-marketing testing and surveillance to monitor safety and
efficacy history of the approved product and continued compliance with
regulatory requirements. Adverse experiences with the product must be reported
to the FDA. Product approvals may be withdrawn if compliance with regulatory
requirements is not maintained or if problems concerning safety or efficacy of
the product occur following approval.
The FDA also mandates that drugs be manufactured in conformity with GMP
regulations. In complying with the GMP regulations, manufacturers must
continue to expend time, money and effort in production, recordkeeping and
quality control to ensure that the product meets applicable specifications and
other requirements. The FDA periodically inspects drug manufacturing
facilities to ensure compliance with applicable GMP requirements. Failure to
comply subjects the manufacturer to possible FDA action, such as warning
letters, suspension of manufacturing, seizure of the product, voluntary recall
of a product or injunctive action. The
35
<PAGE>
Company currently relies on, and intends to continue to rely on, third parties
to manufacture compounds and products. Such third parties will be required to
comply with GMP requirements.
Even after FDA approval has been obtained, and often as a condition to
expedited approval, further studies, including post-marketing studies, may be
required. Results of post-marketing studies may limit or expand the further
marketing of the products. Further, if there are any modifications to the
drug, including changes in indication, manufacturing process, manufacturing
facility or labeling, an NDA supplement may be required to be submitted to the
FDA.
Products marketed outside the United States which are manufactured in the
United States may be subject to certain FDA regulations, as well as regulation
by the country in which the products are to be sold. If products are marketed
abroad, the Company will also be subject to foreign regulatory requirements
governing clinical trials and pharmaceutical sales, which may vary from
country to country. In connection with certain of its strategic relationships,
the Company's collaborators may be responsible for the foreign regulatory
approval process of the Company's drugs, although the Company may be legally
liable for noncompliance.
The Company is also subject to various federal, state and local laws,
regulations and recommendations relating to safe working conditions,
laboratory and manufacturing practices, the experimental use of animals and
the use and disposal of hazardous or potentially hazardous substances,
including radioactive compounds and infectious disease agents, used in
connection with the Company's research work. The extent of government
regulation which might result from future legislation or administrative action
cannot be accurately predicted.
Moreover, the Company anticipates that Congress, state legislatures and the
private sector will continue to review and assess controls on health care
spending. Any such proposed or actual changes could cause the Company or its
collaborators to limit or eliminate spending on development projects and may
otherwise impact the Company. Additionally, in both domestic and foreign
markets, sales of the Company's proposed products will depend, in part, upon
the availability of reimbursement from third-party payors, such as government
health administration authorities, managed care providers, private health
insurers and other organizations. Significant uncertainty often exists as to
the reimbursement status of newly approved health care products. In addition,
third-party payors are increasingly challenging the price and cost
effectiveness of medical products and services. There can be no assurance that
the Company's proposed products will be considered cost effective or that
adequate third-party reimbursement will be available to enable the Company to
maintain price levels sufficient to realize an appropriate return on its
investment in product research and development. See "Risk Factors--Uncertainty
of Pharmaceutical Pricing and Related Matters; Need for Reimbursement."
COMPETITION
The pharmaceutical and biopharmaceutical industries are intensely
competitive. Certain pharmaceutical and biopharmaceutical companies and
academic and research organizations currently engage in, or have engaged in,
efforts related to the discovery and development of new antiviral medicines.
Significant levels of research in chemistry and biotechnology occur in
universities and other nonprofit research institutions. These entities have
become increasingly active in seeking patent protection and licensing revenues
for their research results. They also compete with the Company in recruiting
skilled scientific talent. Many companies are developing therapies to treat
viral diseases and, in this regard, are in competition with the Company. The
Company believes that its ability to compete successfully will be based on its
ability to create and maintain scientifically advanced technology, develop
proprietary products, attract and retain scientific personnel, obtain patent
or other protection for its products, obtain required regulatory approvals and
manufacture and successfully market its products either alone or through
outside parties. Some of the Company's competitors have substantially greater
financial, research and development, manufacturing, marketing and human
resources and greater experience in drug discovery, development, clinical
trial management, FDA regulatory review, manufacturing and marketing than
ViroPharma. See "Risk Factors--Competition" and "Risk Factors--Rapid
Technological Change and Uncertainty."
36
<PAGE>
HUMAN RESOURCES
As of September 1, 1996, ViroPharma had 30 full-time employees, including 12
persons with Ph.D. or M.D. degrees. Twenty-four of ViroPharma's employees are
engaged in research and development activities at the Company's laboratory
facility in Malvern, Pennsylvania. A significant number of the Company's
management and professional employees have had prior experience with
pharmaceutical, biotechnology or medical products companies. None of the
Company's employees is covered by collective bargaining agreements. The
Company believes that its relations with its employees are good. See "Risk
Factors--Dependence on Key Personnel."
FACILITIES
The Company's principal facility consists of approximately 17,000 square
feet of leased laboratory and office space in Malvern, Pennsylvania. The lease
expires in October 1997, with a one year renewal option, subject to lessor
consent. The Company believes its present facilities will be adequate for
operations through 1998. If the Company does not renew its lease upon
expiration, the Company believes it can obtain adequate laboratory and office
space on acceptable terms in the Malvern area.
LEGAL PROCEEDINGS
The Company has no pending legal proceedings.
37
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Claude H. Nash, Ph.D. .. 53 Chief Executive Officer, President and Director
Mark A. McKinlay,
Ph.D. ................. 45 Vice President, Research & Development and Secretary
Marc S. Collett,
Ph.D. ................. 45 Vice President, Discovery Research
Johanna A. Griffin,
Ph.D. ................. 52 Vice President, Business Development
Guy D. Diana, Ph.D. .... 61 Vice President, Chemistry Research
Jon M. Rogers, M.D. .... 44 Vice President, Clinical Research
Vincent J. Milano....... 33 Executive Director, Finance & Administration and Treasurer
Frank Baldino, Jr.,
Ph.D.(2)............... 43 Director
Steve Dow(1)............ 41 Director
Jon N. Gilbert.......... 34 Director
Ann H. Lamont(1)........ 39 Director
Christopher Moller,
Ph.D.(2)............... 43 Director
David I. Scheer(2)...... 43 Director
</TABLE>
- --------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
Claude H. Nash, Ph.D., a co-founder of the Company, has served as Chief
Executive Officer, President and director since the Company's commencement of
operations in December 1994. From 1983 until 1994, Dr. Nash served as Vice
President, Infectious Disease and Tumor Biology at Schering-Plough Research
Institute. Dr. Nash received his Ph.D. from Colorado State University.
Mark A. McKinlay, Ph.D., a co-founder of the Company, has served as Vice
President, Research & Development and Secretary since the Company's
commencement of operations in December 1994. From 1989 through 1994, Dr.
McKinlay served in several positions, including Senior Director, at Sterling
Winthrop Pharmaceuticals Research Division. Dr. McKinlay received his Ph.D.
from Rensselear Polytechnic Institute.
Marc S. Collett, Ph.D., a co-founder of the Company, has served as Vice
President, Discovery Research of the Company since the Company's commencement
of operations in December 1994. From 1993 until he co-founded the Company, he
served as Senior Director, Viral Therapeutics at PathoGenesis Corporation.
Prior to joining PathoGenesis Corporation, Dr. Collett served as Director,
Virology & Antibody Engineering and Director, Biochemical Virology at
MedImmune, Inc., where he was employed from 1988 to 1993. Dr. Collett received
his Ph.D. from the University of Michigan.
Johanna A. Griffin, Ph.D., a co-founder of the Company, has served as Vice
President, Business Development since June 1995 and, from the Company's
commencement of operations in December 1994 until June 1995, served as
Executive Director, Business Development. From 1990 until she joined the
Company, Dr. Griffin served as Director of Molecular Biology at Boehringer
Ingelheim Pharmaceuticals, Inc. Dr. Griffin received her Ph.D. from the
University of Alabama at Birmingham.
38
<PAGE>
Guy D. Diana, Ph.D., a co-founder of the Company, has served as Vice
President, Chemistry Research since June 1995 and, from the Company's
commencement of operations in December 1994 until June 1995, as Executive
Director, Chemistry Research. Prior to joining ViroPharma, he worked at
Sterling Winthrop for 33 years, most recently as a Senior Fellow in Medicinal
Chemistry, where he led the team that discovered pleconaril. Dr. Diana
received his Ph.D. from Yale University.
Jon M. Rogers, M.D., has served as Vice President, Clinical Research since
joining ViroPharma in June 1996. From February 1995 until he joined the
Company, Dr. Rogers was Vice President of medical and scientific affairs for
the pharmaceuticals and diagnostics divisions of Boehringer Mannheim
Corporation, From August 1989 through February 1995, Dr. Rogers served in
various positions at Sterling Winthrop, the latest being Senior Director of
Clinical Research. Dr. Rogers received his M.D. from the University of
Cincinnati College of Medicine.
Vincent J. Milano has served as Executive Director, Finance & Administration
of the Company since joining ViroPharma in April 1996 and as Treasurer since
July 1996. From 1985 until he joined the Company, Mr. Milano was with KPMG
Peat Marwick LLP, where he was Senior Manager since 1991. Mr. Milano is a
Certified Public Accountant. Mr. Milano received his B.S. in accounting from
Rider College.
Frank Baldino, Jr., Ph.D., has served as a director of the Company since
June 1995. Since 1987, Dr. Baldino has served as President, CEO and director
of Cephalon, Inc., an integrated specialty biopharmaceutical company that
discovers, develops, and markets products to treat neurological disorders. Dr.
Baldino is also a director of Integrated Systems Consulting Group, Inc. He
received his Ph.D. from Temple University.
Steve Dow has served as a director of the Company since June 1995. Since
1983, he has been a general partner of Sevin Rosen Funds, a venture capital
firm whose affiliates are principal stockholders in the Company. Mr. Dow also
serves on the Board of Directors of Citrix Systems.
Jon N. Gilbert has served as a director of the Company since September 1996.
Mr. Gilbert is a general partner of Frazier & Company L.P., a private equity
firm specializing in health care, which he joined at its inception in 1991.
Mr. Gilbert received his M.B.A. from Dartmouth College.
Ann H. Lamont, a co-founder of the Company, has served as director of the
Company since June 1995. Since 1986, Ms. Lamont has served as general partner
and managing member of certain limited partnerships affiliated with Oak
Investment Partners, a venture capital organization whose affiliates are
principal stockholders in the Company. Ms. Lamont also serves on the Board of
Directors of Avecor Cardiovascular, Inc.
Christopher Moller, Ph.D., has served as a director of the Company since
June 1995. Since January 1990, Dr. Moller has served as managing director of
Technology Leaders II Management L.P. and its predecessors, venture capital
limited partnerships whose affiliates are principal stockholders in the
Company. Dr. Moller received his Ph.D. from the University of Pennsylvania
School of Medicine.
David I. Scheer, a co-founder of the Company, has served as a director of
the Company since June 1995. Mr. Scheer has served as president of Scheer &
Company, Inc., a research, analytical and strategic consulting services firm
which he founded in 1981.
All of the directors were elected to the Board of Directors pursuant to an
Amended and Restated Shareholders' Voting Agreement, dated as of May 31, 1996,
by and among the Company and certain of its stockholders and executive
officers. The agreement, which will terminate upon the completion of this
offering, provides for the designation of one director each by Oak Investment
Partners VI, Limited Partnership, Sevin Rosen Fund IV, L.P., TL Ventures and
Frazier & Company, Inc., the designation of two directors by the holders of
all outstanding shares of the Redeemable Preferred Stock and Common Stock,
voting together as a single class, and the designation of one director by the
holders of all of the outstanding shares of Common Stock, which
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<PAGE>
director was required to be the Chief Executive Officer of the Company. Ms.
Lamont was designated to be a director by Oak Investment Partners VI, Limited
Partnership, Mr. Dow was designated to be a director by Sevin Rosen Fund IV,
L.P., Dr. Moller was designated to be a director by TL Ventures and Mr.
Gilbert was designated to be a director by Frazier & Company, Inc. In
addition, Dr. Baldino and Mr. Scheer were designated to be directors by the
holders of all outstanding shares of Redeemable Preferred Stock and Common
Stock voting as a single class, and Dr. Nash was designated to be a director
by the holders of Common Stock.
Each director is elected to hold office until the next annual meeting of
stockholders and until his or her respective successor is elected and
qualified. Upon the closing of this offering, the Board of Directors will be
divided into three classes. Each class of directors will serve (after a
transitional period in which the first class will serve until their successors
have been elected and qualified at the 1997 annual meeting of stockholders,
the second class will serve until their successors have been elected and
qualified at the 1998 annual meeting of stockholders and the third class will
serve until their successors have been elected and qualified at the 1999
annual meeting of stockholders) for a term of three years and until their
successors have been elected and qualified. Officers serve at the discretion
of the Board of Directors. The terms of Dr. Moller and Mr. Scheer will expire
at the 1997 annual meeting of stockholders, the terms of Mr. Dow and Ms.
Lamont will expire at the 1998 annual meeting, and the terms of Dr. Baldino,
Mr. Gilbert and Dr. Nash will expire at the 1999 annual meeting.
SCIENTIFIC ADVISORY BOARD
The Company has assembled a Scientific Advisory Board consisting of
individuals with demonstrated expertise in particular fields who periodically
advise the Company on matters relating to long-term scientific planning,
research and development activities and technological matters. Several of the
advisors have had previous scientific working relationships with members of
the Company's management team.
Most of the members of the Scientific Advisory Board are employed by or have
consulting agreements with entities other than the Company, some of which
entities may in the future compete with the Company, and are expected to
devote only a small portion of their time to the Company. They are not
expected to participate actively in the Company's affairs or in the
development of the Company's technology. Certain of the institutions with
which such members of the Scientific Advisory Board are affiliated may adopt
new regulations or policies that limit the ability of the members to consult
with the Company. The loss of the services of certain of the members could
adversely affect the Company, to the extent that the Company is pursuing
research or development in areas of a member's expertise. In addition, since
the Company has not entered into non-competition agreements with all members
of the Scientific Advisory Board, if any member of the Scientific Advisory
Board were to consult with or become employed by any competitor of the
Company, the Company could be materially adversely affected.
Pursuant to several of the scientific advisory/consulting agreements entered
into with some of such members of the Scientific Advisory Board, any
inventions or other intellectual property discovered by the members may not
become the property of the Company but may remain the property of such persons
or of such persons' employers. In addition, the institutions with which such
members are affiliated may make available the research services of their
personnel, including the members of the Scientific Advisory Board, to
competitors of the Company pursuant to sponsored research agreements.
Competitors of the Company may gain access to trade secrets and other
proprietary information developed by the Company and disclosed to the members
of the Scientific Advisory Board. Thus, assistance provided by the various
members is generally limited to advice and consultation unless the Company has
entered into separate collaborative arrangements with the entities with which
the members are affiliated. See "Risk Factors--Uncertain Ability to Protect
Patents and Proprietary Technology and Information," "Business--Patents" and
"Business--Strategic Relationships."
The members of the Company's Scientific Advisory Board are as follows:
Hugh E. Black, D.V.M., Ph.D. is President of Hugh E. Black & Associates,
Inc. In 1994, Dr. Black retired from Schering-Plough Research Institute where
he served as Vice President, Drug Safety and Metabolism.
40
<PAGE>
Dr. Black received his D.V.M. degree from the University of Toronto and his
Ph.D. degree in veterinary pathology from Ohio State University.
Gary L. Davis, M.D., is Professor of Medicine and the Director of the
Hepatobiliary Diseases Section of the Gastroenterology, Hepatology, and
Nutrition Division at the University of Florida College of Medicine in
Gainesville. Dr. Davis received his M.D. degree from the University of
Minnesota.
James B. Flanegan, Ph.D., is Professor of Molecular Genetics and
Microbiology at the University of Florida College of Medicine in Gainesville.
Dr. Flanegan received his Ph.D. degree in biochemistry from the University of
Michigan.
Frederick G. Hayden, M.D., is the S. Stuart Richardson Professor of Clinical
Virology in Internal Medicine and Professor of Internal Medicine and Pathology
at the University of Virginia School of Medicine in Charlottesville. Dr.
Hayden received his M.D. degree from Stanford University School of Medicine.
Michael D. Hayre, D.V.M., is Director of the Laboratory Animal Research
Center, The Rockefeller University in New York. Dr. Hayre received his D.V.M.
degree from Tuskegee University.
Robert A. Lamb, Ph.D., Sc.D., is the John Evans Professor of Molecular and
Cell Biology at Northwestern University and a Howard Hughes Medical Institute
Investigator. Dr. Lamb received his Ph.D. in virology and Sc.D. degree from
the University of Cambridge, England.
Charles M. Rice, Ph.D., is Professor in the Department of Molecular
Microbiology at Washington University School of Medicine in St. Louis,
Missouri. Dr. Rice received his Ph.D. degree in biochemistry from the
California Institute of Technology.
Michael G. Rossmann, Ph.D., is the Hanley Professor of Biological Sciences
at Purdue University in West Lafayette, Indiana. Dr. Rossmann received his
Ph.D. degree in chemical crystallography from the University of Glasgow.
Harley A. Rotbart, M.D. is Professor in the Departments of Pediatrics and
Microbiology at the University of Colorado Health Science Center in Denver.
Dr. Rotbart received his M.D. degree from Cornell University Medical College.
Richard Whitley, M.D., is the Loeb Eminent Scholar and Professor of
Pediatrics, Microbiology and Medicine at University of Alabama at Birmingham.
Dr. Whitley received his M.D. degree from George Washington University School
of Medicine.
Members of the Scientific Advisory Board receive consulting fees for their
services. In addition, to date, the Company has granted an aggregate of 73,950
options to members of the Scientific Advisory Board, of which 2,550 have been
exercised.
DIRECTOR COMPENSATION AND BOARD COMMITTEES
Non-employee directors not affiliated with investors in the Company receive
$1,000 plus travel costs for each meeting of the Board of Directors they
attend.
In connection with the founding of the Company, Dr. Nash and Scheer &
Company, Inc., an affiliate of Mr. Scheer, purchased 331,500 and 165,750
shares of Common Stock in December 1994, respectively. Dr. Nash and Scheer &
Company, Inc. paid $0.002 per share for the Common Stock, then valued at $0.10
per share. Dr. Nash's
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<PAGE>
shares vest in four equal annual installments commencing on the first
anniversary of the date of issuance. The Company has the option to repurchase
all unvested shares for $0.10 per share. In addition, pursuant to a right
granted in December 1994, Dr. Baldino purchased 51,000 shares of Common Stock
in January 1996 at $0.10 per share. The shares vest in four equal annual
installments commencing on the date of issuance. The restrictions on Dr.
Baldino's shares are identical to the restrictions on Dr. Nash's shares. See
"Certain Transactions--Transactions with Founders" and "Certain Transactions--
Right Grant and Exercise."
The Board of Directors has a Compensation Committee, which makes
recommendations concerning salaries and incentive compensation for employees
of and consultants to the Company, and an Audit Committee, which reviews the
results and scope of the audit and other services provided by the Company's
independent auditors.
Mr. Dow, Ms. Lamont, Dr. Moller and Mr. Scheer are parties to
indemnification agreements with the Company. Pursuant to the agreements, the
directors are to be indemnified against liabilities and expenses incurred in
connection with their services to the Company to the fullest extent permitted
by Delaware law. Such indemnification is subject to the director's meeting the
applicable standard of care and to a determination to indemnify by a majority
of disinterested directors (as defined in the agreements) or by independent
counsel (also as defined in the agreements).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
There are no compensation committee interlocks with other entities or
insider participation on the Compensation Committee.
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to
compensation paid or earned during the fiscal year ended December 31, 1995 to
the Company's chief executive officer and the four other most highly
compensated executive officers of the Company (collectively, the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------
OTHER
ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS COMPENSATION(2) COMPENSATION
--------------------------- ---- --------- ----- --------------- ------------
<S> <C> <C> <C> <C> <C>
Claude H. Nash............... 1995 $180,000 -- -- --
Chief Executive Officer and
President
Mark McKinlay................ 1995 165,000 -- -- --
Vice President Research &
Development and Secretary
Marc S. Collett.............. 1995 145,000 -- -- --
Vice President, Discovery
Research
Johanna A. Griffin........... 1995 125,000 -- -- --
Vice President, Business
Development
Guy D. Diana................. 1995 125,000 -- -- --
Vice President, Chemistry
Research
</TABLE>
- --------
(1) In 1995, each Named Executive Officer also received cash payments for
deferred compensation for services performed in December 1994. Drs. Nash,
McKinlay, Collett, Griffin and Diana received payments of $6,923, $6,346,
$5,576, $4,807 and $4,807, respectively.
(2) Excludes perquisites and other personal benefits, securities or property
which are, in the aggregate, less than 10% of the total annual salary and
bonus.
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Option Grants and Year-End Values
There were no options granted to the Named Executive Officers during the
fiscal year ended December 31, 1995, no Named Executive Officers owned any
stock options, whether exercisable or unexercisable, as of the fiscal year
ended December 31, 1995, and no options were exercised by any of the Named
Executive Officers during the fiscal year ended December 31, 1995.
On January 1, 1996, the Company granted options to purchase 38,250 and
51,000 shares of Common Stock to Drs. Collett and McKinlay, respectively. On
April 1, 1996 and June 1, 1996, the Company granted options to purchase 33,150
and 34,425 shares of Common Stock to Mr. Milano and Dr. Rogers, respectively,
in connection with their commencement of employment with the Company. In
addition, on July 1, 1996, the Company granted options to purchase 17,850,
9,180, 9,180, 19,763, 8,288 and 1,722 shares to Drs. Nash, McKinlay, Collett,
Griffin, Diana and Rogers, respectively, and options to purchase 1,658 shares
to Mr. Milano. The exercise price per share of the options granted in January
and April is $0.20, the exercise price per share of the options granted in
June is $0.45 and the exercise price per share of the options granted in July
is $2.16. All of these options were granted under the Company's 1995 Stock
Option Plan, have a term of ten years from the date of grant and are subject
to earlier termination in certain events related to the termination of
employment. The options vest in four equal annual installments commencing,
except with respect to Mr. Milano's options granted in April 1996, on the
first anniversary of grant. Mr. Milano's April options vest in four equal
installments, with the first installment vesting on the closing of this
offering and the remaining three installments vesting annually thereafter
commencing on the second anniversary of the date of grant.
The difference between an assumed initial public offering price per share of
$12.00 and the exercise price per share multiplied by the total number of
options outstanding is: $175,644 for Dr. Nash, $692,131 for Dr. McKinlay,
$541,681 for Dr. Collett, $194,468 for Dr. Griffin, $81,554 for Dr. Diana and
$414,544 for Dr. Rogers. The value of Mr. Milano's options exercisable upon
the closing of this offering is $97,798, and the value of Mr. Milano's
remaining, unexercisable options is $309,710.
STOCK OPTIONS
The Company adopted the 1995 Stock Option Plan on September 20, 1995 (the
"Plan"). The Plan provides for grants of stock options ("Options") to
employees of the Company or its subsidiaries and consultants and advisors who
perform valuable services to the Company or its subsidiaries. The purposes of
the Plan are (i) to further the growth and success of the Company and its
subsidiaries by enabling selected employees of, and consultants and advisors
to, the Company and any subsidiaries to acquire shares of Common Stock,
thereby increasing their personal interest in the Company's growth and success
and (ii) to provide a means of rewarding outstanding performance by such
persons to the Company and/or its subsidiaries.
General. Subject to adjustment in certain circumstances as discussed below,
the Plan authorizes up to 1,200,000 shares of Common Stock for issuance
pursuant to the terms of the Plan. If and to the extent Options granted under
the Plan expire or are terminated or cancelled without having been fully
exercised, the shares of Common Stock subject to such unexercised portion of
such Options again will be available for grant under the Plan. Options to
purchase an aggregate of 171,360 shares of Common Stock were granted prior to
adoption of the Plan pursuant to non-qualified stock option agreements.
Administration of the Plan. The Plan is administered and interpreted by a
committee (the "Committee") of the Board of Directors of the Company
consisting of two or more persons appointed by the Board of Directors from
among its members, each of whom is a "disinterested person" as defined in Rule
16b-3 under the Securities Exchange Act of 1934, as amended. The Committee has
the full power and authority to take all actions and to make all
determinations required or provided for under the Plan, any Option or any
Option agreement ("Option Agreement") entered into under the Plan and all such
other actions and determinations not inconsistent with the specific terms and
provisions of the Plan deemed by the Committee to be necessary or appropriate
to the administration of the Plan, any Option or any Option Agreement entered
into under the Plan. The Committee has plenary authority, in its discretion,
to determine (i) the persons to whom Options will be granted, (ii) the
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<PAGE>
time or times at which Options will be granted, (iii) the number of shares
subject to each Option, (iv) the Option price, (v) the time or times when each
Option will become exercisable and the duration of the exercise period and
(vi) any restrictions on sale and repurchase rights which will be placed upon
the shares of Common Stock purchased upon exercise of an Option. In addition,
the Committee has the authority to provide for acceleration of the
exercisability of Options at any time prior to termination of such Options.
The members of the Compensation Committee currently serve as this Committee.
See "--Director Compensation and Committees."
Grants. Options granted under the Plan may consist of (i) options intended
to qualify as incentive stock options ("ISOs") within the meaning of section
422 of the Internal Revenue Code of 1986 (the "Code") or (ii) so-called
"nonqualified stock options" that are not intended to so qualify ("NQSOs").
Eligibility for Participation. Options may be granted to officers and
employees of, or consultants or advisors to, the Company or its subsidiaries.
As of September 1, 1996, 30 employees were eligible for grants under the Plan.
Officers and employees are eligible to receive ISOs or NQSOs, and consultants
and advisors are eligible to receive NQSOs only. As of September 1, 1996,
260,343 Options were outstanding and held by all participants as a group, at
an average exercise price of $0.64 per share. (As of September 1, 1996,
149,940 options issued prior to adoption of the Plan pursuant to non-qualified
stock option agreements were also outstanding.)
Options. The option exercise price of any ISO granted under the Plan will
not be less than the fair market value of the underlying shares of Common
Stock on the date of grant, except that the option exercise price of an ISO
granted to an employee who owns more than 10% of the total combined voting
power of all classes of the stock of the Company or its subsidiaries may not
be less than 110% of the fair market value of the underlying shares of Common
Stock on the date of grant. The option exercise price of an NQSO may be
greater than, equal to or less than the fair market value of the underlying
shares of Common Stock on the date of grant, but in any case not less than the
minimum price under applicable state law. The Committee will determine the
term of each Option; provided, however, that the exercise period for ISOs may
not exceed ten years from the date of grant and the exercise period of an ISO
granted to a person who owns more than 10% of the voting stock of the Company
may not exceed five years from the date of grant. Unless otherwise provided by
the Committee, Options granted under the Plan vest at a rate of 25% per year
over a four-year period. All options granted to date vest at a rate of 25% per
year over a four-year period, except that 8,288 options granted to Mr. Milano
vest immediately upon the completion of this offering and 5,100 options in the
aggregate granted to two consultants to the Company vest upon the achievement
of certain agreed-upon milestones. The option exercise price must be paid in
full at the time the notice of exercise of the Option is delivered to the
Company and must be tendered in the form specified by the Committee which may
be (i) in cash by bank certified, cashier's or personal check, (ii) by
delivery of shares of Common Stock owned by the participant and having a fair
market value on the date of exercise equal to the Option price or (iii) any
combination of (i) and (ii). Options are nontransferable except by will or the
laws of descent and distribution. An optionee whose relationship with the
Company or any subsidiary ceases for any reason (other than termination for
cause, death or total disability, as such terms are defined in the Plan) may
exercise Options in the three-month period following such cessation (unless
such Options terminate or expire sooner by their terms), or in such longer
period determined by the Committee in the case of NQSOs. In the event an
optionee's relationship terminates on account of disability or death, such
optionee (or his or her executors or legal representatives) may exercise such
Option during the 12-month period following such disability or death.
Amendment and Termination of the Plan. The Board of Directors may at any
time modify and amend the Plan; provided, however, that stockholder approval
is required for any amendment which (i) changes the class of persons eligible
for the grant of Options, (ii) increases (other than pursuant to the
adjustment provisions discussed below) the maximum number of shares subject to
Options granted under the Plan, or (iii) materially increases benefits
accruing to participants under the Plan, within the meaning of Rule 16b-3
under the Exchange Act. The Board of Directors may terminate the Plan at any
time. The Plan will terminate on September 20, 2005, unless
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<PAGE>
terminated earlier by the Board of Directors or extended, although any
termination will not affect Options outstanding at such date.
Adjustment Provisions. Subject to the change of control provisions below, in
the event of certain transactions identified in the Plan, the Company may
appropriately adjust (i) the number and kind of shares for the acquisition of
which Options may be granted under the Plan and (ii) the number and kind of
shares for which Options are outstanding. Any such adjustment in outstanding
Options will not change the aggregate option exercise price payable with
respect to shares subject to the unexercised portion of the outstanding
Options but will include a corresponding adjustment in the option exercise
price per share.
Change of Control of the Company. Upon the dissolution or liquidation of the
Company, a merger, consolidation, or reorganization of the Company with one or
more other corporations in which the Company is not the surviving corporation,
a sale or other transfer of substantially all of the assets of the Company to
another corporation or any transaction (including, without limitation, a
merger or reorganization in which the Company is the surviving corporation)
approved by the Board of Directors that results in any person or entity (other
than persons and affiliates who meet certain requirements) owning 80 percent
or more of the combined voting power, or 80 percent or more of the total
value, of all classes of stock of the Company, the Plan and all Options
outstanding thereunder shall terminate, except to the extent provision is made
in writing in connection with such transaction for the continuation of the
Plan and/or the assumption of such Options theretofore granted, or for the
substitution for such Options of new options covering the stock of a successor
corporation, or a parent or subsidiary thereof, with appropriate adjustment as
to the number and kinds of shares and exercise prices, in which event the Plan
and Options theretofore granted will continue in the manner and under the
terms so provided. In the event of any such termination of the Plan, each
individual holding an Option will have the right (subject to the Plan's
general limitations on exercise), immediately before the occurrence of such
termination and during such period occurring before such termination as the
Committee, in its sole discretion, determines and designates, to exercise such
Option in whole or in part, subject to the limitations on the exercisability
of an Option (including the acceleration of such exercisability). The
Committee shall send written notice of an event that will result in such a
termination to all individuals who hold Options not later than the time at
which the Company gives notice thereof to its stockholders.
Section 162(m). Under Section 162(m) of the Code, the Company may be
precluded from claiming a federal income tax deduction for total remuneration
in excess of $1,000,000 paid to the chief executive officer or to any of the
other four most highly compensated officers in any one year. Total
remuneration would include amounts received upon the exercise of stock options
granted under the Plan. An exception does exist, however, for "performance-
based compensation," including amounts received upon the exercise of stock
options pursuant to a plan approved by stockholders that meets certain
requirements. The Plan is intended to meet the requirements of Treasury
Regulation section 1.162-27(f), and the Options granted under the Plan are
intended to meet the requirements of "performance-based compensation."
401(K) PROFIT SHARING PLAN & TRUST
Effective July 1, 1995, the Company adopted the ViroPharma 401(k) Employee
Savings Plan (the "401(k) Plan"), a tax-qualified plan covering all of its
employees who have completed three months of service with the Company. Each
employee may elect to reduce his or her current compensation by up to 15%,
subject to the statutory limit (a maximum of $9,500 in 1996) and have the
amount of the reduction contributed to the 401(k) Plan. The 401(k) Plan
provides that the Company may, as determined from time to time by the Board of
Directors, provide a discretionary contribution, which will be allocated based
on the proportion of the employee's compensation for the plan year to the
aggregate compensation for the plan year for all eligible employees. All
employee contributions to the 401(k) Plan are fully vested at all times. The
401(k) Plan permits distributions upon hardship, termination of employment,
death, disability or retirement. The 401(k) Plan does not permit loans. As of
the fiscal year ended December 31, 1995, the Company had made no contributions
to the 401(k) Plan.
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<PAGE>
CONFIDENTIALITY AND INVENTIONS AGREEMENTS
The Company has entered into confidentiality and inventions agreements with
each of its employees. The agreements provide that, among other things, all
inventions, discoveries and ideas made or conceived by an employee during
employment which are useful to the Company or related to the business of the
Company or which were made or conceived with the use of the Company's time,
material, facilities or trade secret information, belong exclusively to the
Company, without additional compensation to the employee. The agreements also
have confidentiality provisions in favor of the Company and a noncompetition
provision in favor of the Company during employment.
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CERTAIN TRANSACTIONS
TRANSACTIONS WITH FOUNDERS
Drs. Nash, Collett, McKinlay, Griffin and Diana, Ms. Lamont and Mr. Scheer
founded the Company in December 1994. In connection with the founding of the
Company, Drs. Nash, Collett, McKinlay, Griffin and Diana purchased 331,500,
102,000, 102,000, 63,750 and 63,750 shares of Common Stock, respectively, in
December 1994 pursuant to restricted stock purchase agreements. Each paid
$.002 per share for the Common Stock, then valued at $0.10 per share. The
shares vest in four equal annual installments commencing on the first
anniversary of the date of the issuance. If the valuation of the Company is
greater than $50,000,000 in connection with certain fundamental transactions,
such as a merger in which the Company is not the surviving entity, a merger in
which the Company survives, but fifty percent or more of the voting stock
outstanding prior to the merger is transferred to new holders, or a sale of
all or substantially all of the assets of the Company, all such shares vest
immediately. Prior to vesting, the stockholders have full voting and dividend
rights, but unvested shares may not be transferred, with certain exceptions
for, among others, transfers to family members and to trusts for family
members. The Company has the option to repurchase all unvested shares owned by
a particular founder for $.002 per share upon termination of that founder's
service to the Company as an employee, non-employee director or non-employee
consultant. However, the Company has covenanted with certain investors not to
make repurchases that would limit such investors' qualification under Section
1202 of the Code. To make such a repurchase, the Company would need to obtain
a waiver from such investors. In addition, for two years following the initial
public offering, the holders of shares of such stock, whether vested or
unvested, are required to agree not to transfer their shares for up to 180
days after the effective date of a registration statement filed pursuant to
the Securities Act of 1933.
Also in connection with the founding of the Company, Scheer & Company, Inc.,
an affiliate of Mr. Scheer, purchased 165,750 shares of Common Stock. Scheer &
Company, Inc. paid $.002 per share. In addition, Scheer & Company, Inc.
purchased an 8.5% Convertible Demand Promissory Note from the Company in the
principal amount of $162,500. In December 1994, Scheer & Company, Inc.
assigned $158,795 of the principal amount of the note to Oak Investment
Partners VI, Limited Partnership and $3,705 of the principal amount of the
note to Oak VI Affiliates Fund, Limited Partnership. In June 1995, the note
was converted into 325,000 shares of Series A Preferred Stock at $0.50 per
share. The Company was never required to pay any interest on the note.
See "Management--Executive Compensation" for a description of option grants
in 1996 to certain of the founders, "Management--Director Compensation and
Committees" for a description of the Company's indemnification agreements with
certain directors, including Ms. Lamont and Mr. Scheer, and "Executive
Compensation--Agreements with Employees" for a description of the Company's
confidentiality and inventions agreements with all employees, including Drs.
Nash, Collett, McKinlay, Griffin and Diana. See "--Financings" for a
description of the founders' participation in the Company's equity financings.
FINANCINGS
Since December 1994, various officers, directors and greater than 5%
stockholders have participated in the Company's equity financings. For
information regarding beneficial ownership of the Company's securities by
officers, directors and greater than 5% stockholders of the Company, see
"Principal Stockholders." These financings have included the following:
Between December 1994 and January 1995, the Company sold 675,000 shares of
its Series A Preferred Stock at $0.50 per share to a limited number of
accredited investors in a private placement. In connection with this offering,
Drs. Nash, Collett, McKinlay, Griffin and Diana purchased 140,000, 120,000,
20,000, 50,000 and 20,000 shares of Series A Preferred Stock, respectively.
See "--Transactions with Founders" for a description of the acquisition by
these individuals of Common Stock of the Company pursuant to restricted stock
purchase agreements and the acquisition of Series A Preferred Stock by Oak
Investment Partners VI, Limited Partnership
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<PAGE>
and Oak VI Affiliates Fund, Limited Partnership. All outstanding shares of
Series A Preferred Stock will automatically convert into an aggregate of
344,250 shares of Common Stock upon the closing of this offering.
Between June 1995 and October 1995, the Company sold 7,060,000 shares of
Series B Preferred Stock at $1.00 per share to a limited number of accredited
investors in a private placement. In connection with this financing, Oak
Investment Partners VI, Limited Partnership, Sevin Rosen Fund IV, L.P. and
Technology Leaders, L.P. each purchased two 9.5% Convertible Demand Promissory
Notes from the Company in the principal amounts of $100,000 and $50,000, and
Dr. Nash purchased a 9.5% Convertible Demand Promissory Note in the principal
amount of $30,000. All the notes were cancelled on the first closing date of
the sale of Series B Preferred Stock in partial or full payment for the shares
purchased at such closing by each party. In connection with their purchases of
notes, the Company issued to each of Oak Investment Partners VI, Limited
Partnership, Sevin Rosen Fund IV, L.P. and Technology Leaders, L.P. warrants
to purchase 49,998 shares of Series B Preferred Stock and to Dr. Nash a
warrant to purchase 10,000 shares of Series B Preferred Stock, all with
exercise prices of $1.00 per share. Oak Investment Partners VI, Limited
Partnership subsequently transferred rights to purchase 760 shares under the
first warrant and 380 shares under the second warrant to its affiliate, Oak VI
Affiliates Fund Limited Partnership. Technology Leaders L.P. later transferred
its warrants to its successor fund and an affiliate as follows: Technology
Leaders II, L.P. received warrants to purchase 18,577 and 9,287 shares,
respectively, and Technology Leaders II Offshore C.V. received warrants to
purchase 14,756 and 7,378 shares, respectively. All such warrants will be
exercised prior to the completion of this offering and the Series B Preferred
Stock issued upon such exercise will automatically convert into an aggregate
of 81,597 shares of Common Stock upon the closing of this offering.
Also, in connection with the Series B financing, Oak Investment Partners VI,
Limited Partnership and Oak VI Affiliates Fund Limited Partnership purchased
1,964,400 and 45,600 shares of Series B Preferred Stock, respectively, Sevin
Rosen Fund IV, L.P. and Sevin Rosen Bayless Management Company purchased
2,000,000 and 10,000 shares of Series B Preferred Stock, respectively,
Technology Leaders II L.P. and Technology Leaders II Offshore C.V. purchased
1,114,600 and 885,400 shares of Series B Preferred Stock, respectively, and
New York Life Insurance Company purchased 1,000,000 shares of Series B
Preferred Stock. In addition, Dr. Nash purchased 30,000 shares of Series B
Preferred Stock. All outstanding shares of Series B Preferred Stock will
automatically convert into an aggregate of 3,600,600 shares of Common Stock
upon the closing of this offering.
In May 1996, the Company sold 3,222,222 shares of Series C Preferred Stock
at $2.25 per share to a limited number of accredited investors in a private
placement. In connection with the financing, Oak Investment Partners VI,
Limited Partnership and Oak VI Affiliates Fund, Limited Partnership purchased
497,830 and 11,615 shares of Series C Preferred Stock, respectively, Sevin
Rosen Fund IV, L.P. and Sevin Rosen Bayless Management Company purchased
424,099 and 2,222 shares of Series C Preferred Stock, respectively, Technology
leaders II L.P. and Technology Leaders II Offshore C.V. purchased 245,062 and
194,669 shares of Series C Preferred Stock, respectively and Frazier
Healthcare II L.P. and New York Life Insurance Company purchased 1,500,000 and
214,503 shares of Series C Preferred Stock, respectively. In addition, Drs.
Nash, Collett, Griffin and Diana and Scheer & Company, Inc. purchased 28,889,
31,112, 11,111, 11,111 and 10,000 shares of Series C Preferred Stock,
respectively. All outstanding shares of Series C Preferred Stock will
automatically convert into an aggregate of 1,643,333 shares of Common Stock
upon closing of this offering.
RIGHT GRANT AND EXERCISE
Pursuant to a right granted in December 1994, Dr. Baldino purchased 51,000
shares of Common Stock under a January 1996 restricted stock purchase
agreement at $0.10 per share. The shares vest in four equal annual
installments commencing on the date issuance. The restrictions on the shares
are identical to the restrictions on the shares of Common Stock issued to
founders. See "--Transactions with Founders".
See "Executive Compensation--Option Grants and Year-End Values" for a
description of option grants to executive officers.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of September 1, 1996, as adjusted for the
sale by the Company of the Common Stock offered hereby, by (i) each person or
group who is known by the Company to own beneficially more than 5% of the
Common Stock, (ii) each of the Company's directors, (iii) each of the Named
Executive Officers and (iv) all current executive officers and directors as a
group.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL(1)
----------------------
NUMBER OF SHARES BEFORE THE AFTER THE
BENEFICIALLY OWNED(1) OFFERING OFFERING(2)
--------------------- ---------- -----------
<S> <C> <C> <C>
5% STOCKHOLDERS
- ---------------
Oak Investment Partners VI, 1,471,067 22.4 16.7
Limited Partnership(3)..........
One Gorham Island
Westport, Connecticut 06880
Technology Leaders II L.P.(4).... 1,269,763 19.3 14.4
800 The Safeguard Building
435 Devon Park Drive
Wayne, Pennsylvania 19087
Sevin Rosen Fund IV, L.P.(5)..... 1,268,022 19.3 14.4
13455 Noel Road, Suite 1670
Dallas, Texas 75240
Frazier Healthcare II, L.P.(6)... 765,000 11.6 8.7
Two Union Square
601 Union Street, Suite 2110
Seattle, Washington 98101
New York Life Insurance Company.. 619,397 9.4 7.0
51 Madison Avenue
New York, New York 10016
Claude H. Nash(7)................ 438,033 6.7 5.0
76 Great Valley Parkway
Malvern, PA 19355
EXECUTIVE OFFICERS AND DIRECTORS
- --------------------------------
Ann H. Lamont(3)................. 1,471,067 22.4 16.7
Christopher Moller(4)............ 1,269,763 19.3 14.4
Steve Dow(5)..................... 1,268,022 19.3 14.4
Robert Kupor(6).................. 765,000 11.6 8.7
Claude H. Nash(7)................ 438,033 6.7 5.0
Marc S. Collett(8)............... 179,067 2.7 2.0
David I. Scheer(9)............... 170,850 2.6 1.9
Mark A. McKinlay(10)............. 112,200 1.7 1.3
Johanna A. Griffin(11)........... 94,917 1.4 1.1
Guy D. Diana(12)................. 79,617 1.2 1.0
Frank Baldino, Jr.(13)........... 51,000 * *
Vincent J. Milano(14)............ 9,422 * *
Jon M. Rogers.................... -- -- --
All directors and executive
officers as a group
(13 persons)(15)................ 5,908,958 89.9 66.9
</TABLE>
- --------
* Less than one percent.
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(1) Gives effect to the Warrant Exercise and reflects the Preferred Stock
Conversion. Applicable percentage of ownership is based on 6,570,951
shares of Common Stock outstanding as of June 30, 1996 and 8,820,951
shares of Common Stock to be outstanding upon consummation of this
offering. In accordance with the rules of the Securities and Exchange
Commission, shares underlying options to purchase Common Stock that are
exercisable as of the date of this Prospectus or exercisable within 60
days thereafter are deemed outstanding and to be beneficially owned by
the person holding such option for purposes of computing such person's
percentage ownership, but are not treated as outstanding for the purpose
of computing the percentage ownership of any other person.
(2) Assumes no exercise of the Underwriters' over-allotment option.
(3) Includes 1,412,609 shares of Common Stock owned by Oak Investment
Partners VI, Limited Partnership and 32,959 shares of Common Stock owned
by Oak VI Affiliates Fund, Limited Partnership. Assumes the exercise of
warrants to purchase Series B Preferred Stock owned by Oak Investment
Partners VI, Limited Partnership and Oak VI Affiliates Fund, Limited
Partnership, respectively, and the automatic conversion of such shares of
Series B Preferred Stock into a total of 25,499 shares of Common Stock
upon completion of this offering. Ms. Lamont is a managing member of Oak
Associates VI, LLC, the general partner of both Oak Investment Partners
VI, Limited Partnership and Oak VI Affiliates Fund, Limited Partnership.
Ms. Lamont shares voting and investment power with respect to both
limited partnerships with the other managing members of Oak Associates
VI, LLC. Ms. Lamont disclaims beneficial ownership of shares in which she
has no pecuniary interest. See "Description of Capital Stock--Warrants--
Warrants to Be Exercised."
(4) Includes 693,428 shares of Common Stock owned by Technology Leaders II
L.P. and 550,836 shares of Common Stock owned by Technology Leaders II
Offshore C.V. Assumes the exercise of warrants to purchase Series B
Preferred Stock owned by Technology Leaders II L.P. and Technology
Leaders II Offshore C.V., respectively, and the automatic conversion of
such shares of Series B Preferred Stock into a total of 25,499 shares of
Common Stock upon completion of this offering. Dr. Moller is Managing
Director of Technology Leaders II Management L.P., which is the general
partner of Technology Leaders II L.P. and of Technology Leaders II
Offshore C.V. Dr. Moller shares voting and investment power with the
other managing directors of the general partner of the stockholders and
disclaims beneficial ownership of shares in which he has no pecuniary
interest. See "Description of Capital Stock--Warrants--Warrants to Be
Exercised."
(5) Includes 1,236,290 shares of Common Stock owned by Sevin Rosen Fund IV,
L.P. and 6,233 shares of Common Stock owned by Sevin Rosen Bayless
Management Company. Assumes the exercise of warrants to purchase Series B
Preferred Stock, respectively, and the automatic conversion of such
shares of Series B Preferred Stock into 25,499 shares of Common Stock
upon completion of this offering. Mr. Dow is general partner of Sevin
Rosen Funds, an affiliate of Sevin Rosen IV, L.P. and Sevin Rosen Bayless
Management Company. He shares voting and investment power with the other
general partners and disclaims beneficial ownership of shares in which he
has no pecuniary interest. See "Description of Capital Stock--Warrants--
Warrants to Be Exercised."
(6) Dr. Kupor was recently replaced as a director of the Company by Jon N.
Gilbert. Mr. Gilbert is a member of Frazier Management, L.L.C., which is
the managing member of FHMII, LLC, which, in turn, is the general partner
of Frazier Healthcare II, L.P. Mr. Gilbert shares voting and investment
power with the other members of Frazier Management, L.L.C. and disclaims
beneficial ownership of shares in which he has no pecuniary interest.
(7) Includes 248,625 issued but unvested shares of Common Stock purchased by
Dr. Nash upon the founding of the Company in December 1994. Assumes the
exercise of warrants to purchase 5,100 shares of Series B Preferred
Stock, and the automatic conversion of such shares of Series B Preferred
Stock into shares of Common Stock upon completion of this offering. See
"Certain Transactions--Transactions with Founders" and "Description of
Capital Stock--Warrants--Warrants to Be Exercised."
(8) Includes 76,500 issued but unvested shares of Common Stock purchased by
Dr. Collett upon the founding of the Company in December 1994. See
"Certain Transactions--Transactions with Founders."
(9) All 170,850 shares are owned by Scheer & Company, Inc., of which Mr.
Scheer is a co-founder and president.
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(10) Includes 76,500 issued but unvested shares of Common Stock purchased by
Dr. McKinlay upon the founding of the Company in December 1994. See
"Certain Transactions--Transactions with Founders."
(11) Includes 47,813 issued but unvested shares of Common Stock purchased by
Dr. Griffin upon the founding of the Company in December 1994. See
"Certain Transactions--Transactions with Founders."
(12) Includes 47,813 issued but unvested shares of Common Stock purchased by
Dr. Diana upon the founding of the Company in December 1994. See "Certain
Transactions--Transactions with Founders."
(13) Includes 38,250 issued but unvested shares of Common Stock purchased by
Dr. Baldino in January 1996. See "Certain Transactions--Right Grant and
Exercise."
(14) Represents 1,134 shares of Common Stock and options to purchase 8,288
shares of Common Stock, which will be exercisable upon the closing of
this offering.
(15) Includes 497,250 issued but unvested shares of Common Stock purchased by
the founders of the Company. Includes options to purchase 8,288 shares of
Common Stock, which will be exercisable upon the closing of this
offering. See "Certain Transactions--Transactions with Founders."
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
See the Certificate of Incorporation, as amended (the "Certificate"), and
Bylaws of the Company, copies of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part, for additional
information relating to the description of capital stock below.
Upon the closing of this offering, the authorized capital stock of the
Company will consist of 32,000,000 shares, including 27,000,000 shares of
Common Stock, par value $0.002 per share, and 5,000,000 shares of Preferred
Stock, par value $0.001 per share. At September 1, 1996, there were 901,170
shares of Common Stock outstanding and 10,957,222 shares of Redeemable
Preferred Stock outstanding, of which 675,000 were designated Series A
Preferred Stock, 7,060,000 were designated Series B Preferred Stock,
(7,283,494 including shares of Series B Preferred Stock underlying outstanding
warrants to purchase Series B Preferred Stock) and 3,222,222 were designated
Series C Preferred Stock. Immediately after the Warrant Exercise, the
Preferred Stock Conversion and the sale of the 2,250,000 shares of Common
Stock offered hereby, there will be issued and outstanding 8,820,951 shares of
Common Stock and no shares of Preferred Stock.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders and do not have
cumulative voting rights. Upon the closing of this offering, elections of
directors will be determined by a plurality of the votes cast and the Board of
Directors will be divided into three classes, as nearly equal in number as
possible. The Certificate may be amended as permitted by law. Except as
otherwise required by law, all other matters are determined by a majority of
the votes cast. Holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared by the Board of Directors out of funds
legally available therefor, subject to any preferential dividend rights of
outstanding Preferred Stock (none of which will be outstanding upon the
closing of this offering). Upon the liquidation, dissolution or winding up of
the Company, subject to any preferential liquidation rights of outstanding
Preferred Stock, the holders of Common Stock are entitled to receive ratably
the net assets of the Company available after the payment of all debts and
other liabilities. Holders of the Common Stock have no preemptive,
subscription, redemption or conversion rights. The shares of Common Stock
which will be outstanding upon the Preferred Stock Conversion and the shares
offered by the Company in the Offering will be, when issued and paid for,
fully paid and nonassessable. The rights, preferences and privileges of
holders of Common Stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of Preferred Stock which the
Company may designate and issue in the future. See "Risk Factors--Availability
of Preferred Stock for Issuance; Anti-Takeover Provisions," "--Preferred Stock
and "--Anti-Takeover Provisions."
PREFERRED STOCK
Upon the closing of this offering and the Preferred Stock Conversion, the
Company will have authorized 5,000,000 shares of Preferred Stock, which the
Board of Directors has discretion to issue in such series and with such
preferences and rights as it may designate without the approval of the holders
of Common Stock. Such preferences and rights may be superior to those of the
holders of Common Stock. For example, the holders of Preferred Stock may be
given a preference in payment upon liquidation of the Company, or for the
payment or accumulation of dividends before any distributions are made to the
holders of Common Stock. Assuming the Preferred Stock Conversion, as of the
date of this Prospectus, no Preferred Stock has been issued by the Company,
and the Company has no plans, agreements or understandings for the issuance of
any shares of any series of Preferred Stock. For a description of the possible
anti-takeover effects of the Preferred Stock, see "Risk Factors--Availability
of Preferred Stock for Issuance; Anti-Takeover Provisions" and "--Anti-
Takeover Provisions."
52
<PAGE>
WARRANTS
Warrants to Remain Outstanding
Pursuant to a Warrant Agreement, dated as of September 13, 1995, the Company
issued a warrant to purchase 42,500 shares of Series B Preferred Stock to
Comdisco, Inc. ("Comdisco"), an equipment supplier in connection with a Master
Lease Agreement between the Company and the equipment supplier (the "Equipment
Warrant"). Upon the closing of this offering, the Equipment Warrant will
automatically become exercisable for 21,675 shares of Common Stock. The
Equipment Warrant is exercisable at a price of $2.94 per share and expires
five years from the effective date of this Prospectus. At Comdisco's
discretion, the purchase price may be paid in cash or by surrender of shares
purchasable on exercise pursuant to a formula in the agreement. The number of
shares of Common Stock purchasable under the warrant and the exercise price of
the warrant are subject to adjustment in the event of certain
recapitalizations, reorganizations, stock splits and combinations and in the
event of certain dilutive issuances of capital stock by the Company. In
addition, if the total cost of equipment leased under the Master Lease
Agreement exceeds $750,000, Comdisco will be entitled to purchase additional
shares under the warrant, as determined by a formula in the Warrant Agreement.
Warrants to Be Exercised
In connection with the purchase of 9.5% Convertible Demand Promissory Notes
by three private investors and Dr. Nash prior to their purchase of Series B
Preferred Stock in June 1995, the Company issued warrants to purchase 49,998
shares of Series B Preferred Stock to each of three private investors (two of
whom subsequently transferred all or a portion of their warrants to successors
or affiliates) and warrants to purchase 10,000 shares of Series B Preferred
Stock to Dr. Nash. The exercise price of the warrants is $1.00 per share. At
the warrant holders' discretion, the purchase price may be paid in cash, by
wire transfer, by cancellation of indebtedness or, if the fair market value of
the Series B Preferred Stock is greater than the exercise price, by surrender
of shares purchasable on exercise pursuant to a formula in the agreement. By
their terms, the warrants expire upon the closing of a firm commitment
underwritten public offering pursuant to an effective registration statement
at a price per share of $9.80 and resulting in aggregate net proceeds of not
less than $10,000,000. The Company expects the warrants to expire upon the
closing of this offering and has notified the warrant holders of the warrants'
pending expiration as required by their warrant agreements. The Company
expects all such warrants to be exercised prior to the completion of this
offering, with the subsequent automatic conversion of the Series B Preferred
Stock into an aggregate of 81,597 shares of Common Stock.
INDEMNIFICATION AND LIMITATION OF LIABILITY
The Company's Certificate provides that a director of the Company shall not
be personally liable to the Company or its stockholders for monetary damages
for a breach of fiduciary duty as a director, except for liability (i) for any
breach of such person's duty of loyalty, (ii) for acts or omissions not in
good faith or involving intentional misconduct or a knowing violation of law,
(iii) for the payment of unlawful dividends and certain other actions
prohibited by Delaware corporate law and (iv) for any transaction resulting in
receipt by such person of an improper personal benefit.
The Company is in the process of obtaining a directors' and officers'
liability insurance policy which provides directors and officers with
insurance coverage for losses arising from claims based on breaches of duty,
negligence, error and other wrongful acts. At present, there is no pending
litigation or proceeding, and the Company is not aware of any threatened
litigation or proceeding, involving any director, officer, employee or agent
where indemnification will be required or permitted under the Certificate or
By-Laws. For a description of the Company's indemnification agreements with
certain of its directors, see "Certain Transactions--Transactions with
Founders."
ANTI-TAKEOVER PROVISIONS
Classified Board and Other Matters
Upon the closing of this offering, the Company's Board of Directors will be
divided into three classes, as nearly equal in number as possible. Each class
of directors will serve, after a transitional period in which the
53
<PAGE>
first class will serve until their successors have been elected and qualified
at the 1997 annual meeting of stockholders, the second class will serve until
their successors have been elected and qualified at the 1998 annual meeting of
stockholders and the third class will serve until their successors have been
elected and qualified at the 1999 annual meeting of stockholders, for a term
of three years and until their successors have been elected and qualified.
Accordingly, holders of a majority of the shares of Common Stock entitled to
vote in any election of directors may elect all of the directors standing for
election and may exert considerable influence over the management and policies
of the Company. Moreover, under the Delaware General Corporation Law and the
Certificate, stockholders may remove a director only for cause. The
classification of the Board of Directors and the limitation on the removal of
directors could have the effect of making it more difficult for a third party
to acquire, or discouraging a third party from acquiring, control of the
Company.
In addition, the ability of the Board of Directors to establish the rights
of, and to issue, substantial amounts of Preferred Stock without the need for
stockholder approval, which Preferred Stock may be used to create voting
impediments with respect to changes in control of the Company or dilute the
stock ownership of holders of Common Stock seeking to obtain control of the
Company, may have the effect of discouraging, delaying or preventing a change
in control of the Company. See "Risk Factors--Availability of Preferred Stock
for Issuance; Anti-Takeover Provisions," "--Common Stock" and "--Preferred
Stock."
Section 203 of Delaware General Corporation Law
Upon the consummation of the offering made hereby, the Company will be
subject to the provisions of Section 203 of the Delaware General Corporation
Law, an anti-takeover law ("Delaware 203"). In certain circumstances, Delaware
203 prevents certain Delaware corporations, including those whose securities
are listed on the Nasdaq National Market, from engaging in a "business
combination" (which includes a merger or sale of more than 10% of the
corporation's assets) with any "Interested Stockholder" (generally, a
stockholder who owns 15% or more of the corporation's outstanding voting
stock) for three years following the date on which such stockholder became an
"Interested Stockholder," unless (i) the business combination or transaction
which resulted in the Interested Stockholder's becoming an Interested
Stockholder is approved by the corporation's board of directors prior to the
date the Interested Stockholder becomes an Interested Stockholder or (ii) the
transaction is approved by the board of directors and the holders of at least
66 2/3% of the outstanding voting stock of the corporation (excluding shares
held by the Interested Stockholder). The statutory ban does not apply if, upon
consummation of the transaction in which any person becomes an Interested
Stockholder, the Interested Stockholder owns at least 85% of the outstanding
voting stock of the corporation (excluding shares held by persons who are both
directors and officers or by certain employee stock plans). A Delaware
corporation may "opt out" of Delaware 203 with an express provision either in
its original certificate of incorporation or in its certificate of
incorporation or by-laws resulting from a stockholders' amendment approved by
at least a majority of the outstanding voting shares. The Company is a
Delaware corporation that, upon the consummation of this offering, will be
subject to Delaware 203 and has not "opted out" of its provisions. The
business combination provisions of Section 203 of the Delaware General
Corporation law may have the effect of deterring merger proposals, tender
offers or other attempts to effect changes in control of the Company that are
not negotiated and approved by the Board of Directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the shares of Common Stock will be
StockTrans, Inc.
54
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have a total of 8,820,951
shares of Common Stock outstanding (9,158,451 shares if the Underwriters'
over-allotment option is exercised in full). Of these shares, the 2,250,000
shares of Common Stock offered hereby (2,587,500 shares if the Underwriters'
over-allotment option is exercised in full) will be freely tradeable without
restriction or registration under the Securities Act by persons other than
"affiliates" of the Company, as defined under the Securities Act. The
remaining 6,570,951 shares of Common Stock outstanding are "restricted
securities" as that term is defined by Rule 144 as promulgated under the
Securities Act and may not be resold except pursuant to an effective
registration statement or an applicable exemption from registration, including
Rule 144.
In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
for at least two years, including persons who may be deemed "affiliates" of
the Company, is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of 1% of the then outstanding shares
of Common Stock (approximately 88,210 shares after the sale of Common Stock
offered hereby) or the average weekly trading volume of the Common Stock
during the four calendar weeks preceding such sale, provided that certain
public information about the Company as required by the rule is then available
and the seller complies with certain other requirements. In addition, under
Rule 144(k) a person who is not an affiliate, has not been an affiliate within
three months prior to sale and has beneficially owned the shares proposed to
be sold for at least three years, is entitled to sell such shares under Rule
144 without regard to any of the limitations described above.
Under Rule 144 (and subject to the conditions thereof), no restricted shares
of Common Stock will become eligible for sale upon completion of this
offering; approximately 1,173,000 shares will become eligible for sale between
December 29, 1996 and January 31, 1997, of which all shares will be subject to
lockup restrictions as described below and 663,000 shares will be subject in
varying degrees to the additional restrictions of stock purchase agreements,
approximately 3,600,600 shares will become eligible for sale between June 16,
1997 and October 2, 1997; and the remaining 1,797,350 shares will be eligible
for sale after 1997. See "Certain Transactions--Transactions with Founders."
The Securities and Exchange Commission has proposed an amendment to Rule 144
which would reduce the holding period required for shares subject to Rule 144
to become eligible for sale in the public market from two years to one year,
and from three years to two years in the case of Rule 144(k). If this proposal
is adopted, an additional 3,600,600 shares of Common Stock will become
eligible for sale to the public beginning 180 days after the date of this
Prospectus.
The Company's officers and directors and all other stockholders, option
holders and warrant holders have agreed that they will not, directly or
indirectly, offer, sell or otherwise dispose of any shares of Common Stock or
rights to acquire Common Stock (other than (i) with respect to employees of
the Company, pursuant to employee stock option plans, employee stock purchase
plans or in connection with other employee compensation arrangements or (ii)
to a transferee that agrees to be similarly bound) for a period of 180 days
from the date of this Prospectus, without the prior written consent of Cowen
and Company. See "Underwriting."
As of September 1, 1996, options to purchase a total of 410,283 shares of
Common Stock were outstanding with a weighted average exercise price of $0.64
per share, of which options to purchase 16,320 shares of Common Stock were
exercisable. In addition, options to purchase 8,288 shares of Common Stock
will become exercisable upon the closing of this offering. An additional
939,657 shares of Common Stock were available for future option grants under
the Company's stock option plan as of September 1, 1996. The Company has also
granted warrants to purchase Common Stock. In addition to the warrants to
purchase 159,994 shares of Series B Preferred Stock which the Company expects
to be exercised in the Warrant Exercise, the Company has issued warrants to
purchase 42,500 shares of Series B Preferred Stock at $1.50 per share. Upon
the closing of this offering, the warrants will be exercisable for 21,675
shares of Common Stock at $2.94 per share. All shares subject to options and
warrants are subject to lock-up agreements. See "Management--Stock Option
Plan," "Description of Capital Stock--Warrants" and "Underwriting."
55
<PAGE>
Rule 701 under the Securities Act provides an exemption from the
registration requirements of the Act of offers and sales of securities issued
pursuant to certain compensatory benefit plans or written contracts of a
company not subject to the reporting requirements of Sections 13 or 15(d) of
the Securities Exchange Act of 1934, as amended. The rule also provides that
beginning 90 days after the date of this Prospectus, shares of Common Stock
acquired on the exercise of outstanding options may be resold by persons other
than affiliates subject only to the manner of sale provisions of Rule 144, and
by affiliates subject to all provisions of Rule 144 except its two-year
minimum holding period. The Company also intends to file one or more
registration statements on Form S-8 under the Securities Act to register
shares of Common Stock subject to stock options, which would also permit the
resale of the shares acquired upon the exercise of such options.
As of the date hereof, stockholders of the Company are entitled to certain
piggyback and demand registration rights with regard to 10,957,222 shares of
outstanding Preferred Stock, which will automatically convert into 5,588,184
shares of Common Stock upon the closing of this offering. In addition, the
founders of the Company are entitled to certain piggyback registration rights
with regard to 828,750 outstanding shares of Common Stock. By exercising such
registration rights, subject to certain limitations, such holders could cause
a significant number of shares to be registered and sold in the public market.
Such sales may have an adverse effect on the market price for the Common Stock
and could impair the Company's ability to raise capital through an offering of
its equity securities. All such rights in connection with this offering have
been waived.
In addition, Rule 144A permits unlimited resales of restricted shares under
certain circumstances involving Qualified Institutional Buyers, which are
generally defined as institutions with over $100 million invested in
securities. Such resales can be made without regard to any volume or other
restrictions.
Prior to this offering, there has been no public market for the Common Stock
of the Company and no predictions can be made of the effect, if any, that the
sale or availability for sale of additional shares of Common Stock, under Rule
144, pursuant to registration rights or otherwise, will have on the trading
price of the Common Stock. Nevertheless, sales of substantial amounts of such
shares in the public market, or the perception that such sales could occur,
could adversely affect the trading price of the Common Stock and could impair
the Company's future ability to raise capital through an offering of its
equity securities.
56
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their representatives,
Cowen & Company and J.P. Morgan Securities Inc. (the "Representatives"), have
severally agreed to purchase from the Company the following respective number
of shares of Common Stock at the initial public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus:
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITER OF COMMON STOCK
- ----------- ----------------
<S> <C>
Cowen & Company................................................
J.P. Morgan Securities Inc.....................................
---------
Total........................................................ 2,250,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all shares of Common Stock offered hereby if any such shares are
purchased.
The Company has been advised by the Representatives of the Underwriters that
the Underwriters initially 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 not in
excess of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain dealers.
After the initial public offering, the offering price and other selling terms
may be changed by the Representatives of the Underwriters.
The Company has granted to the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to 337,500
additional shares of Common Stock at the initial public offering price less
the underwriting discounts and commissions set forth on the cover page of this
Prospectus to cover over-allotments, if any. To the extent the Underwriters
exercise such option, each of the Underwriters will have a firm commitment to
purchase approximately the same percentage thereof that the number of shares
of Common Stock to be purchased by it shown in the above table bears to
2,250,000, and the Company will be obligated, pursuant to the option, to sell
such shares to the Underwriters. The Underwriters may exercise such option
only to cover over-allotments made in connection with the sale of the Common
Stock offered hereby. If purchased, the Underwriters will offer such
additional shares on the same terms as those on which the 2,250,000 shares are
being offered.
The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act, as amended.
The Company, its officers, directors and all other stockholders, option
holders and warrant holders of the Company have entered into agreements
providing that, for a period of 180 days after the date of this Prospectus,
they will not, without the prior written consent of Cowen & Company, offer,
sell or otherwise dispose of any shares of Common Stock or any rights to
acquire Common Stock (other than (i) with respect to employees of the Company,
pursuant to employee stock option plans, employee stock purchase plans or in
connection with other employee compensation arrangements or (ii) to a
transferee that agrees to be similarly bound). See "Shares Eligible for Future
Sale."
57
<PAGE>
The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
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 by negotiations among the Company and the
Representatives of the Underwriters. Among the factors to be considered in
such negotiations will be prevailing market conditions, the market
capitalizations and stages of development of other companies which the Company
and the Representatives of the Underwriters believe to be comparable to the
Company, estimates of the business potential of the Company, the state of the
Company's development and other factors deemed relevant.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania. Certain
legal matters in connection with this offering will be passed upon for the
Underwriters by Morrison & Foerster LLP, New York, New York.
EXPERTS
The financial statements of the Company as of December 31, 1994 and 1995 and
for the period from December 5, 1994 (inception) to December 31, 1994 and the
year ended December 31, 1995, 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.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-1 under the Securities Act with respect to
the Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents
of any contract or other document referred to are not necessarily complete and
in each instance reference is made to the copy of such contract or other
documents filed as an exhibit to the Registration Statement, and each such
statement is qualified in all respects by such reference. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and the exhibits and schedules
filed as a part thereof. The Registration Statement, including exhibits and
schedules thereto, may be inspected without charge at the Commission's
principal office at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies
of all or any part thereof may be obtained from such office after payment of
fees prescribed by the Commission.
58
<PAGE>
VIROPHARMA INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.............................................. F-2
Financial Statements:
Balance Sheets at December 31, 1994 and 1995 and June 30, 1996 (unau-
dited)................................................................. F-3
Statements of Operations for the period December 5, 1994 (inception) to
December 31, 1994, the year ended December 31, 1995, the six-months
ended June 30, 1995 and 1996 (unaudited) and the period December 5,
1994 (inception) to June 30, 1996 (unaudited) ......................... F-4
Statements of Stockholders' Equity (Deficit) for the period December 5,
1994 (inception) to December 31, 1994, the year ended December 31,
1995, and the six-months ended June 30, 1996 (unaudited)............... F-5
Statements of Cash Flows for the period December 5, 1994 (inception) to
December 31, 1994, the year ended December 31, 1995, the six-months
ended June 30, 1995 and 1996 (unaudited) and the period December 5,
1994 (inception) to June 30, 1996 (unaudited).......................... F-6
Notes to Financial Statements........................................... F-7
</TABLE>
F-1
<PAGE>
WHEN THE TRANSACTION REFERRED TO IN NOTE 12 OF THE NOTES TO FINANCIAL
STATEMENTS HAS BEEN CONSUMMATED, WE WILL BE IN A POSITION TO RENDER THE
FOLLOWING REPORT.
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
ViroPharma Incorporated:
We have audited the accompanying balance sheets of ViroPharma Incorporated (A
Development Stage Company) as of December 31, 1994 and 1995, and the related
statements of operations, stockholders' equity (deficit) and cash flows for the
period from December 5, 1994 (inception) to December 31, 1994 and the year
ended December 31, 1995. 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 ViroPharma Incorporated (A
Development Stage Company) as of December 31, 1994 and 1995, and the results of
its operations and its cash flows for the period from December 5, 1994
(inception) to December 31, 1994 and the year ended December 31, 1995, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Philadelphia, Pennsylvania
April 25, 1996, except as to the second and third paragraph of Note 7, which
are as of May 31, 1996 and Note 12 which is as of
F-2
<PAGE>
VIROPHARMA INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
DECEMBER 31, 1994 AND 1995 AND
JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
PRO FORMA
JUNE 30, JUNE 30,
1994 1995 1996 1996
-------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..... $ 22,870 337,044 828,581 828,581
Short-term investments........ -- 4,376,382 7,607,221 7,607,221
Other current assets.......... 2,000 103,948 287,681 287,681
-------- ---------- ---------- ----------
Total current assets....... 24,870 4,817,374 8,723,483 8,723,483
Equipment and leasehold im-
provements, net............... -- -- 183,809 183,809
Other assets................... -- 56,471 56,618 56,618
-------- ---------- ---------- ----------
Total assets............... $ 24,870 4,873,845 8,963,910 8,963,910
======== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Accounts payable 2,207 310,560 552,819 552,819
Notes payable (including re-
lated party amount of
$162,500 in 1994; none in
1995 and 1996)............... 162,500 37,500 54,500 54,500
Obligation under capital
lease--current............... -- -- 48,390 48,390
Accrued expenses and other
current liabilities.......... 103,335 1,198,939 792,847 792,847
-------- ---------- ---------- ----------
Total current liabilities.. 268,042 1,546,999 1,448,556 1,448,556
Obligation under capital
lease--noncurrent............. -- -- 144,014 144,014
-------- ---------- ---------- ----------
268,042 1,546,999 1,592,570 1,592,570
-------- ---------- ---------- ----------
Mandatorily redeemable
convertible preferred stock,
par value $.001 per share, (at
redemption value which
includes accretion of $0,
$30,964 and $406,496 at
December 31, 1994 and 1995 and
June 30, 1996, respectively),
issuable in Series A, B and C.
Authorized 5,800,000 shares in
1994; 10,315,000 shares in
1995 and 12,000,000 shares in
1996; issued and outstanding
120,000 shares in 1994,
7,735,000 shares in 1995 and
10,957,222 shares in 1996
(converts into 5,588,184 pro
forma common shares at June
30, 1996 upon consummation of
the offering contemplated
herein)....................... 60,000 7,428,464 15,053,996 --
-------- ---------- ---------- ----------
Stockholders' equity (deficit):
Common stock, par value $.002
per share. Authorized
8,300,000 shares in 1994;
12,790,000 shares in 1995 and
27,000,000 shares in 1996;
issued and outstanding
828,750 shares at December
31, 1994 and 1995, and
901,170 shares at June 30,
1996 (6,489,354 pro forma
common shares at June 30,
1996 upon conversion)........ 1,657 1,657 1,802 12,978
Additional paid-in capital.... 79,593 91,717 155,430 15,198,250
Notes receivable on common
stock........................ (1,625) -- -- --
Deferred compensation......... (63,700) (47,775) (463,391) (463,391)
Unrealized gains on available
for sales securities......... -- 26,742 21,458 21,458
Deficit accumulated during the
development stage............ (319,097) (4,173,959) (7,397,955) (7,397,955)
-------- ---------- ---------- ----------
Total stockholders' equity
(deficit)................. (303,172) (4,101,618) (7,682,656) 7,371,340
-------- ---------- ---------- ----------
Commitments
Total liabilities and
stockholders' equity
(deficit)................. $ 24,870 4,873,845 8,963,910 8,963,910
======== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
VIROPHARMA INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
PERIOD DECEMBER 5, 1994 (INCEPTION) TO DECEMBER 31, 1994,
THE YEAR ENDED DECEMBER 31, 1995,
THE SIX-MONTHS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED)
AND THE PERIOD DECEMBER 5, 1994 (INCEPTION) TO JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PERIOD
DECEMBER 5, DECEMBER 5,
1994 SIX-MONTHS 1994
(INCEPTION) TO YEAR ENDED ENDED JUNE 30, (INCEPTION) TO
DECEMBER 31, DECEMBER 31, ------------------------ JUNE 30,
1994 1995 1995 1996 1996
-------------- ------------ ----------- ----------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Grant revenue......... $ -- 90,813 -- -- 90,813
--------- ---------- ---------- ---------- ----------
Total revenues...... -- 90,813 -- -- 90,813
--------- ---------- ---------- ---------- ----------
Operating expenses
incurred in the
development stage:
Research and develop-
ment................. 75,779 2,930,106 677,730 2,624,558 5,630,443
General and adminis-
trative.............. 243,318 1,091,299 362,928 673,719 2,008,336
--------- ---------- ---------- ---------- ----------
Total operating ex-
penses............. 319,097 4,021,405 1,040,658 3,298,277 7,638,779
--------- ---------- ---------- ---------- ----------
Loss from opera-
tions.............. (319,097) (3,930,592) (1,040,658) (3,298,277) (7,547,966)
Interest income, net.... -- 75,730 4,840 74,281 150,011
--------- ---------- ---------- ---------- ----------
Net loss............ $(319,097) (3,854,862) (1,035,818) (3,223,996) (7,397,955)
========= ========== ========== ========== ==========
Accretion of redemption
value attributable to
mandatorily redeemable
convertible preferred
stock.................. -- 30,964 12,385 375,532 406,496
--------- ---------- ---------- ---------- ----------
Net loss allocable to
common shareholders.... $(319,097) (3,885,826) (1,048,203) (3,599,528) (7,804,451)
========= ========== ========== ========== ==========
Pro forma (unaudited):
Pro forma net loss per
share................ $ (.90) $ (.52)
========== ==========
Shares used in
computing pro forma
net loss per share... 4,304,776 6,163,767
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
VIROPHARMA INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
PERIOD DECEMBER 5, 1994 (INCEPTION) TO DECEMBER 31, 1994,
THE YEAR ENDED DECEMBER 31, 1995 AND
THE SIX-MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
----------------
UNREALIZED DEFICIT
NOTES GAINS ON ACCUMULATED TOTAL
ADDITIONAL RECEIVABLE AVAILABLE DURING THE STOCKHOLDERS'
NUMBER PAID-IN ON COMMON DEFERRED FOR SALE DEVELOPMENT EQUITY
OF SHARES AMOUNT CAPITAL STOCK COMPENSATION SECURITIES STAGE (DEFICIT)
--------- ------ ---------- ---------- ------------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 5,
1994 (inception)....... -- -- -- -- -- -- -- --
Issuance of common
stock to founders..... 828,750 $1,657 79,593 (1,625) (79,625) -- -- --
Amortization of
deferred
compensation.......... -- -- -- -- 15,925 -- -- 15,925
Net loss for period.... -- -- -- -- -- -- (319,097) (319,097)
------- ------ -------- ------ -------- ------ ---------- ----------
Balance, December 31,
1994................... 828,750 $1,657 79,593 (1,625) (63,700) -- (319,097) (303,172)
Proceeds from notes
receivable............ -- -- -- 1,625 -- -- -- 1,625
Issuance costs of
Series A and B
preferred stock....... -- -- (46,912) -- -- -- -- (46,912)
Unrealized gains on
available for sale
securities............ -- -- -- -- -- 26,742 -- 26,742
Amortization of
deferred
compensation.......... -- -- -- -- 15,925 -- -- 15,925
Accretion of redemption
value attributable to
mandatorily redeemable
convertible preferred
stock................. -- -- (30,964) -- -- -- -- (30,964)
Value attributed to
issuance of warrants.. 90,000 90,000
Net loss............... -- -- -- -- -- -- (3,854,862) (3,854,862)
------- ------ -------- ------ -------- ------ ---------- ----------
Balance, December 31,
1995................... 828,750 1,657 91,717 -- (47,775) 26,742 (4,173,959) (4,101,618)
Deferred compensation
resulting from grant
of options
(unaudited)........... -- -- 459,390 -- (459,390) -- -- --
Amortization of
deferred compensation
(unaudited)........... -- -- -- -- 43,774 -- -- 43,774
Issuance costs of
Series C preferred
stock (unaudited)..... -- -- (27,100) -- -- -- -- (27,100)
Unrealized loss on
available for sale
securities
(unaudited)........... -- -- -- -- -- (5,284) -- (5,284)
Exercise of common
stock grant and
options (unaudited)... 72,420 145 6,955 -- -- -- -- 7,100
Accretion of redemption
value attributable to
mandatorily redeemable
convertible preferred
stock (unaudited)..... -- -- (375,532) -- -- -- -- (375,532)
Net loss (unaudited)... -- -- -- -- -- -- (3,223,996) (3,223,996)
------- ------ -------- ------ -------- ------ ---------- ----------
Balance, June 30, 1996
(unaudited)............ 901,170 $1,802 155,430 -- (463,391) 21,458 (7,397,955) (7,682,656)
======= ====== ======== ====== ======== ====== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
VIROPHARMA INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
PERIOD DECEMBER 5, 1994 (INCEPTION) TO DECEMBER 31, 1994,
THE YEAR ENDED DECEMBER 31, 1995,
THE SIX-MONTHS ENDED JUNE 30, 1995 AND 1996 (UNAUDITED)
AND THE PERIOD DECEMBER 5, 1994 (INCEPTION) TO JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 5, PERIOD
1994 DECEMBER 5,
(INCEPTION) SIX-MONTHS 1994
TO YEAR ENDED ENDED JUNE 30, (INCEPTION) TO
DECEMBER 31, DECEMBER 31, ------------------------ JUNE 30,
1994 1995 1995 1996 1996
------------ ------------ ----------- ----------- -------------- ---
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net cash flows used in operating ac-
tivities:
Net loss............... $(319,097) (3,854,862) (1,035,818) (3,223,996) (7,397,955)
Adjustments to recon-
cile net loss to net
cash used in operating
activities:
Non-cash compensation
expense............... 15,925 15,925 7,963 43,774 75,624
Non-cash warrant val-
ue.................... -- 90,000 -- -- 90,000
Depreciation........... -- -- -- 20,897 20,897
Changes in assets and
liabilities:
Other current assets.. (2,000) (101,948) 2,000 (183,733) (287,681)
Other assets.......... -- (56,471) -- (147) (56,618)
Accounts payable...... 2,207 308,353 75,898 242,259 552,819
Accrued expenses and
other current liabil-
ities................ 103,335 1,095,604 208,978 (406,091) 792,847
--------- ----------- ---------- ---------- -----------
Net cash used in oper-
ating activities..... (199,630) (2,503,399) (740,979) (3,507,038) (6,210,067)
--------- ----------- ---------- ---------- -----------
Net cash used in invest-
ing activities:
Purchase of equipment.. -- -- -- (204,706) (204,706)
Purchase of short-term
investments........... -- (11,018,731) (2,929,816) (3,236,123) (14,254,854)
Sales of short-term in-
vestments............. -- 4,363,754 -- -- 4,363,754
Maturities of short-
term investments...... -- 2,305,337 -- -- 2,305,337
--------- ----------- ---------- ---------- -----------
Net cash used in in-
vesting activities... -- (4,349,640) (2,929,816) (3,440,829) (7,790,469)
--------- ----------- ---------- ---------- -----------
Net cash provided by financing activi-
ties:
Net proceeds from issu-
ance of preferred
stock................. 60,000 6,648,088 3,158,854 7,222,900 13,930,988
Net proceeds from issu-
ance of common stock.. -- -- -- 7,100 7,100
Proceeds received on
notes receivable...... -- 1,625 1,625 -- 1,625
Proceeds from notes
payable............... 162,500 517,500 480,000 17,000 697,000
Obligation under capi-
tal lease............. -- -- -- 192,404 192,404
--------- ----------- ---------- ---------- -----------
Net cash provided by
financing activi-
ties................. 222,500 7,167,213 3,640,479 7,439,403 14,829,117
--------- ----------- ---------- ---------- -----------
Net increase (decrease)
in cash and cash equiv-
alents................. 22,870 314,174 (30,316) 491,537 828,581
Cash and cash equiva-
lents at beginning of
period................. -- 22,870 22,870 337,044 --
--------- ----------- ---------- ---------- -----------
Cash and cash equiva-
lents (deficit) at end
of period.............. $ 22,870 337,044 (7,446) 828,581 828,581
========= =========== ========== ========== ===========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
<TABLE>
<CAPTION>
PERIOD
DECEMBER 5, SIX-MONTHS DECEMBER 5,
1994 ENDED 1994
(INCEPTION) TO YEAR ENDED JUNE 30, (INCEPTION)
DECEMBER 31, DECEMBER 31, ----------------------- TO JUNE 30,
1994 1995 1995 1996 1996
-------------- ------------ ----------- ----------- ----------- ---
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Conversion of Note Payable to Se-
ries A and Series B Preferred
Stock............................. $ -- 642,500 642,500 -- 642,500
Note issued for 828,750 common
shares............................ 1,625 -- -- -- 1,625
Deferred compensation.............. 79,625 -- -- 459,390 539,015
Accretion of redemption value at-
tributable to mandatorily redeem-
able preferred stock.............. -- 30,964 -- 375,532 406,496
Unrealized gains (losses) on
available for sale securities..... -- 26,742 -- (5,284) 21,458
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
VIROPHARMA INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
(INFORMATION AS OF JUNE 30, 1996 AND WITH RESPECT TO
THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
(1) ORGANIZATION AND BUSINESS ACTIVITIES
ViroPharma Incorporated (a development stage company) (the "Company")
commenced operations on December 5, 1994. The Company is a biopharmaceutical
company engaged in the discovery and development of proprietary antiviral
pharmaceuticals for the treatment of RNA viruses. The Company is considered a
"development stage company", as defined in Statement of Financial Accounting
Standards ("SFAS") No. 7. The accompanying financial statements include the
results of operations of the Company from December 5, 1994 (inception) to June
30, 1996.
The Company is devoting substantially all of its efforts towards conducting
drug discovery and development, conducting clinical trials, pursuing
regulatory approval for products under development, recruiting personnel,
raising capital and building infrastructure. In the course of such activities,
the Company has sustained operating losses and expects such losses to continue
for the foreseeable future. The Company has not generated any significant
revenues or product sales and has not achieved profitable operations or
positive cash flow from operations. The Company's deficit accumulated during
the development stage aggregated $7,397,955 through June 30, 1996. There is no
assurance that profitable operations, if ever achieved, could be sustained on
a continuing basis.
The Company plans to continue to finance its operations with a combination
of stock issuances, such as the initial public offering contemplated herein
("Offering"), private placements and follow-on public offerings, license
payments, payments from strategic research and development arrangements and,
in the longer term, revenues from product sales. There are no assurances,
however, that the Company will be successful in obtaining an adequate level of
financing needed for the long-term development and commercialization of its
planned products.
(2) BASIS OF ACCOUNTING AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and cash equivalents:
The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents. All
cash and cash equivalents are held in United States (U.S.) financial
institutions, including commercial paper of U.S. companies, with both a cost
and fair value of $248,659 and none at December 31, 1995 and June 30, 1996,
respectively.
Short-term investments:
Short-term investments consist primarily of debt securities backed by the
U.S. government. The Company's entire short-term investment portfolio is
currently classified as available for sale and is stated at fair value as
determined by quoted market values. Changes in the net unrealized holding
gains and losses are included as a separate component of stockholders' equity
(deficit). For purposes of determining gross realized gains and losses, the
cost of temporary investments sold is based upon specific identification. The
Company has not experienced any significant realized gains or losses on its
investments through June 30, 1996.
Concentration of credit risk:
The Company invests its excess cash and short-term investments in accordance
with a policy objective that seeks to ensure both liquidity and safety of
principal. The policy limits investments to certain types of
F-7
<PAGE>
VIROPHARMA INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
instruments issued by the U.S. government and institutions with strong
investment grade credit ratings and places restrictions in their terms and
concentrations by type and issuer.
Equipment and leasehold improvements:
The Company leases certain of its equipment and facilities under operating
leases. Operating lease payments are charged to operations over the related
period that such leased equipment is utilized in service.
Assets and liabilities related to capital leases are recorded at the present
value of the future minimum rental payments using interest rates appropriate
at the inception of the lease. Capital lease amortization is included with
depreciation and amortization expense.
Expenditures for repairs and maintenance are expensed as incurred.
Patent costs:
Patent application and maintenance costs are expensed as incurred.
Research and development:
Research and product development costs are expensed as incurred.
Licensed technology:
Costs incurred in obtaining the license rights to technology in the research
and development stage are expensed as incurred and in accordance with the
specific contractual terms of such license agreements.
Accounting for income taxes:
Deferred income tax assets and liabilities are determined based on
differences between the financial statement reporting and tax bases of assets
and liabilities and are measured using the enacted tax rates and laws that
will be in effect when the differences are expected to reverse. The
measurement of deferred income tax assets is reduced, if necessary, by a
valuation allowance for any tax benefits which are not expected to be
realized. The effect on deferred income tax assets and liabilities of a change
in tax rates is recognized in the period that such tax rate changes are
enacted.
Revenue recognition (grants):
Revenue from grant agreements is recognized in the period in which the
related expenses are incurred and in accordance with the Company's obligations
under the terms of the respective grant.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Stock-based compensation
In October 1995, the FASB issued SFAS 123 "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 presents companies with the alternative
of retaining the current accounting for stock-based compensation or adopting a
new accounting method based on the estimated fair value of equity instruments
granted to employees during the year. Companies that do not adopt the fair
value based method of accounting will be required to adopt the disclosure
provisions of SFAS 123 for the year ending December 31, 1996. It is the
Company's present intention to continue applying its current accounting for
stock based compensation and to present the required footnote disclosures
commencing in the 1996 financial statements.
F-8
<PAGE>
VIROPHARMA INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Pro forma net loss per share (unaudited):
Pro forma net loss per share is computed using the weighted average number
of common shares and common equivalent shares (using the treasury stock
method) outstanding and gives effect to certain adjustments described below.
Common equivalent shares from stock options and warrants and convertible
preferred stock are excluded from the computation as their effect is
antidilutive, except that, pursuant to Securities and Exchange Commission
(SEC) Staff Accounting Bulletins and SEC staff policy, common and common
equivalent shares issued during the 12-month period prior to the proposed
Offering at prices below the anticipated Offering price are presumed to have
been issued in contemplation of the Offering and have been included in the
calculation as if they were outstanding for all periods presented (using the
treasury stock method and a proposed Offering price of $12). In the
computation of pro forma net loss per share, accretion of the redemption value
attributable to mandatorily redeemable preferred stock is not included as an
increase to net loss.
Pursuant to the policy of the SEC staff, the calculation of shares used in
computing pro forma net loss per share also includes all Series of mandatorily
redeemable convertible preferred stock that will automatically convert into
shares of common stock upon completion of the Offering (using the treasury
stock and if-converted method) from their respective original dates of
issuance.
The following table sets forth the calculation of total number of shares
used in the computation of pro forma net loss per common share:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1995 1996
------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Weighted average common shares outstanding............ 828,750 890,612
Incremental shares assumed to be outstanding related
to common stock, stock options and warrants granted
based on the treasury stock method................... 187,487 187,487
Convertible preferred stock .......................... 3,288,539 5,085,668
--------- ---------
Weighted average common and common equivalent shares
used in computation of pro forma net loss per common
share................................................ 4,304,776 6,163,767
========= =========
</TABLE>
Pro forma balance sheet (unaudited):
Upon the closing of the Offering, all of the outstanding shares of Series A,
B and C Mandatorily Redeemable Preferred Stock ("Redeemable Preferred Stock")
will automatically convert into 5,588,183 shares of common stock. The
unaudited pro forma presentation of the June 30, 1996 balance sheet has been
prepared assuming the conversion of the Redeemable Preferred Stock into common
stock as of June 30, 1996, the most recent balance sheet included in the
accompanying financial statements.
Interim financial statements (unaudited):
The balance sheet at June 30, 1996, the statements of operations and
statements of cash flows for the six months ended June 30, 1995 and 1996 and
the period from December 5, 1994 (inception) to June 30, 1996 and the
statement of stockholders' equity (deficit) for the six months ended June 30,
1996 are unaudited. In the
F-9
<PAGE>
VIROPHARMA INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
opinion of management of the Company, such unaudited financial statements
include all adjustments (consisting of normal recurring accruals) necessary
for a fair presentation of financial results for the interim periods. The
results of operations for the six months ended June 30, 1996 are not
necessarily indicative of results to be expected for the entire year.
(3) SHORT-TERM INVESTMENTS
Short-term investments consist of fixed income securities with original
maturities of greater than three months but less than one year including U.S.
treasury instruments of agencies of the U.S. government and high-grade
commercial paper. At December 31, 1995 and June 30, 1996, all of the short-
term investments were deemed as "available for sale" investments.
The following summarizes the "available for sale" investments at December
31, 1995 and June 30, 1996:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Obligations of the U.S.
government and agencies of the
U.S. :
December 31, 1995............ $4,349,640 26,742 -- 4,376,382
========== ====== === =========
June 30, 1996 (unaudited).... $7,585,763 21,458 -- 7,607,221
========== ====== === ========= ===
</TABLE>
(4) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following at
December 31, 1994 and 1995 and June 30, 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1994 1995 1996
-------- --------- --------
<S> <C> <C> <C>
License fee payable................................. $ -- 1,036,000 666,666
Payroll and payroll taxes payable................... 23,278 72,986 9,809
Other current liabilities........................... 80,057 89,953 116,372
-------- --------- -------
$103,335 1,198,939 792,847
======== ========= =======
</TABLE>
(5) LICENSE AND RESEARCH AGREEMENTS
In December 1995, the Company entered into a license agreement with Sanofi
S.A. ("Sanofi") for its most advanced drug candidate. Under the Sanofi
agreement, the Company was required to pay a license fee of $1,000,000. This
amount was charged to operations in 1995 and paid in February 1996. In
addition, the Company is required to make a milestone payment of up to
$2,000,000 upon the earlier of a future milestone event, as defined, or three
years from the date of the agreement. The $2,000,000 milestone payment is
being charged to operations on a pro-rata monthly basis commencing in December
1995 over eighteen months.
In connection with the Sanofi agreement, the Company would also be required
to make certain significant additional payments, including royalties, as
defined, should agreed-upon future milestones be attained. At the present
time, there can be no assurance that such future milestones will be attained.
During 1995, the Company entered into various licensing, research and other
agreements. Under these agreements, the Company is working in collaboration
with various other parties. Should any discoveries be made under such
arrangements, the Company would be required to negotiate the licensing of the
technology for the development of the respective discoveries. The Company is
committed to pay certain amounts aggregating $46,000 over a two-year period
under one of these agreements. There are no funding commitments under any
other agreement other than Sanofi.
F-10
<PAGE>
VIROPHARMA INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(6) NOTES PAYABLE
In December 1994, the Company entered into a noninterest bearing note for
$162,500, which note was converted by the holder into Series A Preferred Stock
in June 1995.
In 1995, the Company secured a $50,000 note payable to the Ben Franklin
Technology Fund. At December 31, 1995 and June 30, 1996, outstanding
borrowings under such facility aggregated $37,500 and $54,500 respectively.
The Company is required to make quarterly payments of 3% of Company revenues,
as defined and in accordance with a repayment schedule. The repayment schedule
incorporates an interest payment (9.5% interest rate) in the amounts due. The
first payment is due in January 1996. The loan, which is subordinated to the
current preferred shareholders, is secured by the Company's intellectual
property (Note 13).
(7) MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Company completed the sale of its Series A (675,000 shares) and Series B
(7,060,000 shares) mandatorily redeemable convertible preferred stock at per
share prices of $.50 and $1.00, respectively. Aggregate net proceeds from
these transactions totaled approximately $7,350,000, which included a $162,500
promissory note with an investor which was converted into Series A Preferred
Stock in June 1995.
On May 31, 1996, The Company sold 3,222,222 shares of Series C mandatorily
redeemable convertible preferred stock at a per share price of $2.25 for
aggregate net proceeds of approximately $7,223,000.
The holders of the Redeemable Preferred Stock are entitled to certain
preferences over common stock including a liquidation preference of $.50 for
Series A, $1.00 for Series B, and $2.25 for Series C plus dividends, if and
when declared but unpaid, and redemption of the Redeemable Preferred Stock
upon demand of holders of at least 67% of the then outstanding Redeemable
Preferred Stock. Redeemable Preferred Stockholders were originally entitled to
cumulative dividends, only from and after March 1, 2000. Such right to
cumulative dividends was revoked by the Redeemable Preferred Stockholders in
conjunction with the Series C Preferred Stock agreement consummated on May 31,
1996. The Redeemable Preferred Stock is automatically convertible on a one-
for-one basis (adjusted for the .51 for 1 stock split (the "Reverse Stock
Split")) immediately upon the closing of an initial public offering of the
common stock of the Company at a per share price of not less than $5 per share
(adjusted for the Reverse Stock Split) and for aggregate Offering proceeds of
not less than $15 million. Due to the mandatory redemption feature of the
Redeemable Preferred Stock, these securities are classified at their accreted
redemption value outside of stockholders' equity (deficit) in the accompanying
balance sheets.
Dividends on Redeemable Preferred Stock do not accrue unless declared by the
Company. The Company has not declared any dividends on Redeemable Preferred
Stock.
Commencing April 1, 2004, The Company is required to redeem 50% of the then
outstanding Redeemable Preferred Stock (100% on or after April 1, 2005) upon
demand of holders of at least 67% of the then outstanding Redeemable Preferred
Stock. The redemption price is equal to the greater of the (i) liquidation
amount, as noted above or (ii) fair market value of such preferred stock at
such point in time as determined by an independent valuation.
The difference between the deemed current fair market value of the
Redeemable Preferred Stock and the liquidation amount is being accreted on a
pro-rata basis in the accompanying financial statements over the period from
issuance of such respective classes of Redeemable Preferred Stock through
April 1, 2004, the earliest mandatory redemption date. Such calculations will
continue to be evaluated by the Company for possible future changes in the
deemed fair market value of such Redeemable Preferred Stock until April 1,
2004, or the consummation of the Offering.
F-11
<PAGE>
VIROPHARMA INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
At June 30, 1996, the Redeemable Preferred Stock consist of the following:
Series A--authorized and issued 675,000 shares; Series B--authorized 7,283,744
shares and issued 7,060,000 shares; and Series C--authorized and issued
3,222,222 shares. In addition, there are 819,034 additional authorized shares
of Preferred Stock not designated to a specific class of Preferred Stock as of
June 30, 1996.
The Company also secured $480,000 in bridge financing loans in March and May
1995, which amounts were converted to Series B preferred stock in June 1995.
In 1995, in connection with the bridge financing, the Company issued 159,994
warrants to Series B investors to purchase Series B preferred stock at the
fair value of the Series B preferred stock at the date of issuance ($1.00 per
share). Such warrants will be exercised concurrent with the proposed Offering
contemplated herein. The deemed fair value of such warrants at their issuance
date aggregated $90,000, which amount was charged to operations in 1995.
(8) COMMON STOCK AND COMMON STOCK OPTIONS
Upon inception of the Company in December 1994, certain members of
management and a co-founder/director purchased 828,750 shares of common stock.
Management purchased 663,000 shares which vest annually over a four-year
period. The Company has the right to repurchase any unvested shares at the
original price paid for such shares should the employee leave the Company
before such shares are fully vested. A co-founder/director purchased 165,750
shares. The difference between the deemed fair value and the price paid
($.002) per share, for the aforementioned common stock at inception in
December 1994 was $79,625. Compensation expense related to these shares of
common stock aggregated $15,925 in both 1994 and 1995 and $7,963 in 1996,
respectively. Pursuant to a right granted in December 1994, a director
purchased in January 1996, 51,000 shares of common stock at $.10 per share,
pursuant to a restricted stock purchase agreement.
The Company has adopted the 1995 Stock Option Plan (the "Plan") to provide
eligible individuals with an opportunity to acquire or increase an equity
interest in the Company and to encourage such individuals to continue in the
employment of the Company. Prior to the adoption of the Plan, stock options
granted in 1994 and 1995 were non-qualified stock options. Stock options are
granted at the deemed fair market value of the stock on the day immediately
preceding the date of grant. Stock options are exercisable for a period not to
exceed ten years from the date of grant. Vesting of the stock options occur,
generally 25% per year, over four years. There are 1,200,000 shares reserved
under the Plan.
Stock option activity from December 5, 1994 (inception) to June 30, 1996 is
as follows:
<TABLE>
<CAPTION>
STOCK PER
OPTIONS SHARE
------- -------
<S> <C> <C>
Balance, December 5, 1994 (inception)......................... -- --
Granted..................................................... 158,610 $ .10
Exercised................................................... -- --
Cancelled................................................... -- --
-------
Balance, December 31, 1994.................................... 158,610 .10
Granted..................................................... 12,750 .20
Exercised................................................... -- --
Cancelled................................................... -- --
-------
Balance, December 31, 1995.................................... 171,360 .10-.20
Granted (unaudited)......................................... 166,515 .20-.45
Exercised (unaudited)....................................... (21,420) .10
Cancelled (unaudited)....................................... -- --
-------
Balance, June 30, 1996 (unaudited)............................ 316,455 .10-.45
=======
Options exercisable at June 30, 1996 (unaudited)............ 16,320 .10
=======
</TABLE>
F-12
<PAGE>
VIROPHARMA INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Various executive officers and certain employees of the Company were granted
options to acquire 174,165 shares of common stock at exercise prices ranging
from $.20 to $.45 per share during the period January 1, 1996 through June 30,
1996. The exercise price of the options was equal to the fair market value of
the Common Stock on the date of grant, as determined by the Board of
Directors. However, for financial statement purposes, the difference between a
deemed value in the range of $1.96 to $4.41 per share and the respective
exercise prices at the grant dates has been recorded as deferred compensation
($459,390) and is being amortized over the four-year vesting period.
Compensation expense for the aforementioned options aggregated $35,811 for the
six months ended June 30, 1996.
(9) INCOME TAXES
At December 31, 1995, the Company had available for Federal and state income
tax purposes net operating loss carryforwards of approximately $1,207,000.
Such carryforwards, which expire through 2010 and 1997, respectively, are
available to reduce future Federal and state taxable income, if any.
Based on "change in ownership" provisions of the Tax Reform Act of 1986, net
operating loss and research and development credit carryforwards may be
subject to annual limitations that could reduce the Company's ability to
utilize these carryforwards in the future.
Significant components of the Company's deferred tax assets and liabilities
as of December 31, 1994 and 1995 are shown below. At December 31, 1995, a
valuation allowance of $1,607,846 has been recognized to offset the deferred
tax assets as realization of such assets is uncertain. The change in the
valuation allowance for 1994 and 1995 was an increase of $127,559 and
$1,480,287, respectively.
<TABLE>
<CAPTION>
1994 1995
--------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards...................... $ 66,352 549,171
Capitalized research and development costs............ -- 1,033,238
Compensatory stock grants............................. 22,770 --
Capitalized start-up costs............................ 63,917 50,917
--------- -----------
Total deferred tax assets........................... $ 153,039 $ 1,633,326
Deferred tax liability:
Employee compensation................................. 25,480 25,480
--------- -----------
Net deferred tax assets................................. $ 127,559 $ 1,607,846
Valuation allowance..................................... (127,559) (1,607,846)
--------- -----------
Total deferred tax assets........................... $ -- $ --
========= ===========
</TABLE>
(10) 401(K) PROFIT SHARING PLAN
In 1995, the Company adopted a 401(k) Profit Sharing Plan (the "401(k)
Plan") available to all employees meeting certain eligibility criteria. The
401(k) Plan permits participants to contribute up to 15% of their compensation
not to exceed the limits established by the Internal Revenue Code. All
contributions made by participants vest immediately in the participants'
account. The Company did not contribute to the 401(k) Plan in 1995 or during
the six-months ended June 30, 1996.
(11) COMMITMENTS
In September 1995, the Company entered into a lease arrangement for the
financing of certain lab equipment, leasehold improvements, computers and
office equipment. The terms range from three to four years.
F-13
<PAGE>
VIROPHARMA INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The maximum amount that can be financed under this arrangement is $750,000. In
connection with this arrangement, 63,750 warrants to purchase Series B
preferred stock were originally granted to the lessor at the original Series B
issuance price of $1.00 per share. The deemed fair value of such warrants at
their issuance date aggregated $63,750, which amount is being amortized to
operations over the terms of the lease arrangement. The number of warrants and
the related $1.00 exercise price will be adjusted based on a formula to
reflect the increase in per share price of the Series C Preferred Stock over
Series B Preferred Stock (42,500 warrants at an exercise price of $1.50 per
share).
In October 1995, the Company entered into an operating lease agreement for
its present corporate facilities. The lease term is for two years with a one
year renewal option, subject to lessor consent.
In December 1995, the Company entered into a lease arrangement for the
financing of certain equipment. The terms of this arrangement are for four
years from the date of funding. The maximum amount that can be financed under
this arrangement is $620,000, which includes $120,000 of used equipment which
the Company is obligated to purchase at the end of the lease term for $24,000.
The initial financing occurred in January 1996.
Leased capital assets at June 30, 1996 are as follows:
<TABLE>
<S> <C>
Computer equipment.............................................. $204,706
Less accumulated amortization................................... (20,897)
--------
$183,809
========
</TABLE>
The Company's future minimum lease payments under the aforementioned leases
for years subsequent to December 31, 1995 are as follows:
<TABLE>
<CAPTION>
MINIMUM
ANNUAL PAYMENTS
------------------
YEAR ENDING OPERATING CAPITAL
DECEMBER 31, LEASES LEASES
------------ --------- --------
<S> <C> <C>
1996................................................. $280,715 35,252
1997................................................. 234,899 70,503
1998................................................. 75,850 70,503
1999................................................. 75,850 58,344
2000 and thereafter.................................. -- 2,374
-------- --------
Total minimum lease payments......................... $667,314 $236,976
========
Amounts representing interest........................ (44,572)
--------
Present value of net minimum lease payments.......... $192,404
Current portion...................................... 48,390
--------
Long-term portion.................................... $144,014
========
</TABLE>
Rent expense for the period from December 5, 1994 (date of inception) to
December 31, 1994, the year ended December 31, 1995 and the six month period
ended June 30, 1996 aggregated $20,000, $271,000 and $160,000, respectively.
F-14
<PAGE>
VIROPHARMA INCORPORATED
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(12)
Reverse Stock Split
The Company effected the Reverse Stock Split of its common stock on
, 1996. All common share, per share and pro forma per share amounts in
the accompanying financial statements have been retroactively adjusted to
reflect the Reverse Stock Split. Preferred stock amounts have not been
retroactively adjusted to reflect the Reverse Stock Split.
(13) SUBSEQUENT EVENTS (UNAUDITED)
Initial Public Offering:
In July 1996, the Board of Directors authorized the filing of a registration
statement for the Offering with the SEC for the sale of up to 3,450,000 shares
of common stock. If the Offering is consummated under terms presently
anticipated, all shares of Series A, B and C Redeemable Preferred Stock
outstanding as of the closing date of the Offering will be automatically
converted into shares of common stock on a one-for-one basis, as adjusted for
the Reverse Stock Split.
Preferred Stock and Common Stock:
In May 1996, the Board of Directors authorized and the stockholders approved
an amendment to the Restated Certificate of Incorporation whereby the Company
was authorized to issue up to 27,000,000 shares of common stock, $0.001 par
value, and 12,000,000 shares of Preferred Stock, $0.001 par value.
Corporate Partner Agreement:
In July 1996, the Company entered into a collaborative drug discovery and
development agreement with Boehringer Ingelheim Pharmaceuticals Inc. ("BI")
for one hepatitis C target identified by the Company. Under this agreement,
the Company granted to BI the exclusive worldwide rights to develop and
commercialize compounds discovered under the agreement. In return, BI paid a
technology access fee of $1,000,000 to the Company and is required to make
research and milestone payments to the Company in connection with the
Company's transfer of HCV screening and assay technology and at various stages
in the development of compounds under the agreement. In addition, BI is
required to make royalty payments to the Company on sales of products
developed and marketed under this agreement.
Ben Franklin Technology Fund:
In August 1996, the Company paid the Ben Franklin Technology Fund loan
aggregating $54,500.
Stock Options:
On July 1, 1996, the Company granted options to all employees to acquire
93,828 shares of common stock at an exercise price of $2.16 per share. Such
options vest ratably on an annual basis over the ensuing four years subsequent
to the grant date. The exercise price of the options was equal to the fair
market value of the Common Stock on the date of grant, as determined by the
Board of Directors. However, for financial statement purposes, the difference
between a deemed value of $8.82 per share and the $2.16 exercise price at the
grant date will be recorded on July 1, 1996 as deferred compensation and will
be amortized over the aforementioned vesting period commencing July 1, 1996.
F-15
<PAGE>
[GRAPHIC DEPICTING MAP OF WORLD OVERLAID WITH COLUMNS LISTING GLOBAL RNA VIRUS
DISEASES, WITH AN INSET DEPICTING RNA REPLICATION]
VIROPHARMA
OPPORTUNITY AND TECHNOLOGY
ViroPharma believes that its technologies are po-
tentially applicable to a broad range of RNA virus
diseases.
Many people experience two or three common colds
per year. It is estimated that 100 million people
in the world are infected with hepatitis C. Other
RNA viruses continue to emerge throughout the
world, spreading from rural and developing regions
to urbanized centers, and threaten the health of
increasing numbers of people.
ViroPharma is using its expertise in RNA virology,
RNA replication and automated high throughput assay
development to discover novel small molecule inhib-
itors of RNA virus replication. ViroPharma opti-
mizes new inhibitor compounds using medicinal, com-
binatorial and automated synthetic chemistry tech-
nologies in conjunction with drug design and compu-
tational chemistry methodologies and parallel bio-
logical assessments.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS NOT CONTAINED HEREIN
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS OR BY ANY OTHER PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES
OFFERED HEREBY, TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO
MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
--------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors ............................................................ 6
The Company.............................................................. 16
Use of Proceeds.......................................................... 16
Dividend Policy.......................................................... 16
Capitalization........................................................... 17
Dilution................................................................. 18
Selected Financial Data.................................................. 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 20
Business................................................................. 22
Management............................................................... 38
Certain Transactions..................................................... 47
Principal Stockholders................................................... 49
Description of Capital Stock............................................. 52
Shares Eligible for Future Sale.......................................... 55
Underwriting............................................................. 57
Legal Matters............................................................ 58
Experts.................................................................. 58
Additional Information................................................... 58
Index to Financial Statements............................................ F-1
</TABLE>
--------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,250,000 Shares
LOGO
Common Stock
--------------------
PROSPECTUS
--------------------
COWEN & COMPANY
J.P. MORGAN & CO.
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Estimated expenses (other than underwriting discounts and commissions)
payable in connection with the sale of the Common Stock offered hereby are as
follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............. $11,600.00
National Association of Securities Dealers, Inc. filing fee...... 3,864.00
The Nasdaq Stock Market Listing Fee.............................. 38,302.00
Transfer Agent and Registrar Fees................................ *
Printing and engraving expenses.................................. *
Legal fees and expenses.......................................... *
Accounting fees and expenses..................................... *
Blue Sky fees and expenses (including legal fees)................ 15,000.00
Miscellaneous.................................................... *
----------
Total.......................................................... $
==========
</TABLE>
--------
* To be supplied by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Delaware General Corporation Law and the Company's By-laws provide for
indemnification of the Company's directors and officers for liabilities and
expenses that they may incur in such capacities. In general, directors and
officers are indemnified with respect to actions taken in good faith in a
manner reasonably believed to be in, or not opposed to, the best interests of
the Company, and with respect to any criminal action or proceeding, actions
that the indemnitee had no reasonable cause to believe were unlawful.
Reference is made to the Company's By-laws filed as Exhibit 3.2 hereto.
In addition, certain directors of the Company are parties to indemnification
agreements with the Company. Pursuant to the agreements, such directors are to
be indemnified against liabilities and expenses incurred in connection with
their services to the Company to the fullest extent permitted by Delaware law.
Such indemnification is subject to the director's meeting the applicable
standard of care and to a determination to indemnify by a majority of
disinterested directors (as defined in the agreements) or by independent
counsel (also as defined in the agreements).
The Underwriting Agreement provides that the Underwriter is obligated, under
certain circumstances, to indemnify directors, officers and controlling
persons of the Company against certain liabilities, including liabilities
under the Securities Act of 1933, as amended (the "Act"). Reference is made to
the form of Underwriting Agreement filed as Exhibit 1 hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since December 1994, the registrant has issued and sold the following
unregistered securities:
1. Upon the founding of the Company in December 1994, certain founders of
the Company purchased an aggregate of 675,750 shares of Common Stock
pursuant to restricted stock purchase agreements. Each purchaser paid
$0.002 per share of Common Stock, then valued at $0.10 per share. In
addition, an affiliate of a founder purchased 165,750 shares of Common
Stock. The affiliate paid $0.002 per share.
II-1
<PAGE>
2. From December 1994 to January 1995, the Company sold 350,000 shares of
Series A Preferred Stock for an aggregate price of $175,000, or $0.50 per
share, to certain of the founders of the Company. All of such outstanding
shares of Series A Preferred Stock will convert into an aggregate of
178,500 shares of Common Stock on a one-for-one basis upon completion of
this offering.
3. In December 1994, the Company sold an 8.5% Convertible Demand
Promissory Note in the principal amount of $162,500 to an affiliate of a
founder of the Company. In December 1994, the founder assigned the note to
two affiliates of another founder, who converted their notes into a total
of 325,000 shares of Series A Preferred Stock at $0.50 per share in June
1995.
4. Pursuant to a right granted in December 1994, a director purchased
51,000 shares of Common Stock under a January 1996 restricted stock
purchase agreement at $0.10 per share.
5. In March and May 1995, the Company sold two 9.5% Convertible Demand
Promissory Notes in the principal amounts of $100,000 and $50,000 to each
of three private investors and one 9.5% Convertible Promissory Note in the
principal amount of $30,000 to an executive officer. All the notes were
cancelled in connection with such investors' and executive officer's
purchase of Series B Preferred Stock described in paragraph 7 below, in
partial or full payment for the shares.
6. In connection with the purchase of the 9.5% Convertible Demand
Promissory Notes, the Company issued warrants to purchase 49,998 shares of
Series B Preferred Stock, respectively, to each of the three private
investors and 10,000 shares to the executive officer. Two of the private
investors subsequently transferred all or portions of the warrants to
successors or affiliates. The Company expect all such warrants to be
exercised prior to the closing of this offering.
7. Between June 1995 and October 1995, the Company sold 7,060,000 shares
of Series B Preferred Stock for an aggregate of $7,060,000, or $1.00 per
share, to private investors and an executive officer of the Company. All of
such outstanding shares of Series B Preferred Stock will convert into an
aggregate of 3,600,600 shares of Common Stock upon the closing of this
offering.
8. In September 1995, the Company issued a warrant to purchase 42,500
shares of Series B Preferred Stock at $1.50 per share to an equipment
supplier in connection with a Master Lease Agreement between the Company
and the equipment supplier. Upon the closing of this offering, the warrant
will automatically become exercisable for 21,675 shares of Common Stock at
$2.94 per share.
9. In May 1996, the Company sold 3,222,222 shares of Series C Preferred
Stock for an aggregate of $7,249,999.50, or $2.25 per share, to private
investors and the executive officers of the Company. All of such
outstanding shares of Series C Preferred Stock will convert into an
aggregate of 1,643,333 shares of Common Stock on a one-for-one basis upon
the closing of this offering.
10. From 1994 to the present, the Company has granted options to acquire
an aggregate of 431,702 shares of Common Stock, at exercise prices ranging
from $0.10 to $2.16, to various directors, officers, employees and non-
employees. To date, options to purchase 21,420 shares of Common Stock have
been exercised.
The Company believes that the transactions described above were exempt from
registration under Sections 3(a)(9), 3(b) or 4(2) of the Securities Act
because the subject securities were, respectively, either (i) exchanged by the
issuer with its existing security holders exclusively, with no commission or
other remuneration being paid or given directly or indirectly for soliciting
such exchange, (ii) issued pursuant to a compensatory benefit plan pursuant to
Rule 701 under the Securities Act or (iii) sold to a limited group of persons,
each of whom was believed to have been a sophisticated investor or had a pre-
existing business or personal relationship with the Company or its management
and was purchasing for investment without a view to further distribution.
Restrictive legends were placed on stock certificates evidencing the shares
and/or agreements relating to the right to purchase such shares described
above.
Specifically, the Company believes that the transactions described in
paragraph 1 and certain transactions described in paragraphs 2, 3, 5, 6, 7, 8
and 9 were exempt from registration under Section 4(2) of the Securities Act.
The Company believes that the transactions relating to the conversion of the
preferred stock and the notes
II-2
<PAGE>
described in paragraphs 2, 3, 5, 6, 7 and 9 were exempt from registration
under Section 3(a)(9) of the Securities Act. In respect of the right described
in paragraph 4 and the options described in paragraph 10, the Company is
relying upon the fact that such grants were not sales or, if such grants were
sales, they and the exercises described were exempt from registration under
Sections 4(2) and 3(b) of the Securities Act. The Company intends to file
registration statements on Form S-8 under the Securities Act to register all
of the shares of Common Stock underlying the Company's outstanding options.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1** Form of Underwriting Agreement.
3.1* Form of Amended and Restated Certificate of Incorporation of the
Company, to be effective upon the consummation of the offering.
3.2* By-laws of the Company.
5.1** Opinion of Morgan, Lewis & Bockius LLP regarding legality of the
shares of Common Stock being registered.
10.1*++ 1995 Stock Option Plan.
10.2*++ ViroPharma 401(k) Employee Savings Plan, effective July 1, 1995.
10.3* Lease dated September 19, 1995 between the Company and Centocor
Property Management Corp. II.
10.4* Master Lease Agreement dated September 13, 1995 between the Company
and Comdisco, Inc.
10.5* Master Equipment Lease No. 053-0005 dated December 1, 1995 between the
Company and Phoenix Leasing Incorporated.
10.6*+ Agreement dated December 22, 1995 between the Company and Sanofi.
10.7*+ Collaborative Research Agreement dated as of July 23, 1996 between the
Company and Boehringer Ingelheim Pharmaceuticals, Inc.
10.8* Form of Employment Agreement.
10.9* Form of Indemnification Agreement.
10.10* Form of Employee Stock Purchase Agreement.
10.11* Restricted Stock Purchase Agreement dated as of January 17, 1996, by
and between the Company and Frank Baldino, Jr.
10.12* Series B Convertible Preferred Stock Purchase Agreement dated as of
June 16, 1995 among the Company and each of the entities on the
"Schedule of Purchasers" attached thereto as Schedule A.
10.13* Series C Convertible Preferred Stock Purchase Agreement dated as of
May 30, 1996 among the Company and each of the individuals and
entities on the "Schedule of Purchasers" attached thereto as Schedule
A.
10.14* Form of Warrants to Purchase Series B Preferred Stock dated March 3,
1995 and May 12, 1995.
10.15* Warrant Agreement dated as of September 13, 1995 between the Company
and Comdisco, Inc.
10.16* Amended and Restated Investors' Rights Agreement, dated as of May 30,
1996, by and among the Company and the persons identified on Schedule
A, Schedule B and the Schedule of Founders thereto.
23.1* Consent of KPMG Peat Marwick LLP.
23.2** Consent of Morgan, Lewis & Bockius LLP (to be included in Exhibit
5.1).
24* Power of Attorney (included on signature page).
27* Financial Data Schedule
</TABLE>
- --------
* Filed herewith.
** To be filed by amendment.
+ Portions of this exhibit were omitted and filed separately with the
Secretary of the Commission pursuant to an application for confidential
treatment filed with the Commission pursuant to Rule 406 under the
Securities Act.
++ Compensation plans and arrangements for executives and others.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS.
A. The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing 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 for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act of 1993 and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
C. The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN MALVERN, PENNSYLVANIA ON SEPTEMBER
20, 1996.
Viropharma, Inc.
/s/ Claude H. Nash, Ph.D.
By: _________________________________
CLAUDE H. NASH, PH.D.
CHIEF EXECUTIVE OFFICER AND
PRESIDENT
POWER OF ATTORNEY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED. EACH PERSON WHOSE SIGNATURE APPEARS
BELOW IN SO SIGNING ALSO MAKES, CONSTITUTES AND APPOINTS CLAUDE H. NASH, PH.D.
AND VINCENT J. MILANO, AND EACH OF THEM ACTING ALONE, HIS TRUE AND LAWFUL
ATTORNEY-IN-FACT AND AGENT, WITH FULL POWER OF SUBSTITUTION AND
RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN ANY AND ALL
CAPACITIES, TO EXECUTE AND CAUSE TO BE FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ANY AND ALL AMENDMENTS AND POST-EFFECTIVE AMENDMENTS TO THIS
REGISTRATION STATEMENT AND A RELATED REGISTRATION STATEMENT THAT IS TO BE
EFFECTIVE UPON FILING PURSUANT TO RULE 462(B) UNDER THE SECURITIES ACT OF
1933, AND IN EACH CASE TO FILE THE SAME, WITH ALL EXHIBITS THERETO AND OTHER
DOCUMENTS IN CONNECTION THEREWITH, AND HEREBY RATIFIES AND CONFIRMS ALL THAT
SAID ATTORNEY-IN-FACT OR HIS SUBSTITUTE OR SUBSTITUTES MAY DO OR CAUSE TO BE
DONE BY VIRTUE HEREOF.
SIGNATURES TITLE(S) DATE
/s/ Claude H. Nash, Ph.D. Chief Executive September 20,
- ------------------------------------- Officer, President and 1996
CLAUDE H. NASH, PH.D. Director (Principal
Executive Officer)
/s/ Vincent J. Milano Executive Director, September 20,
- ------------------------------------- Finance & 1996
VINCENT J. MILANO Administration and
Treasurer
(Principal
Financial and
Accounting Officer)
/s/ Frank Baldino, Jr., Ph.D. Director September 20,
- ------------------------------------- 1996
FRANK BALDINO, JR., PH.D.
/s/ Steve Dow Director September 20,
- ------------------------------------- 1996
STEVE DOW
/s/ Jon N. Gilbert Director September 20,
- ------------------------------------- 1996
JON N. GILBERT
/s/ Ann H. Lamont Director September 20,
- ------------------------------------- 1996
ANN H. LAMONT
/s/ Christopher Moller, Ph.D. Director September 20,
- ------------------------------------- 1996
CHRISTOPHER MOLLER, PH.D.
/s/ David I. Scheer Director September 20,
- ------------------------------------- 1996
DAVID I. SCHEER
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1** Form of Underwriting Agreement.
3.1* Form of Amended and Restated Certificate of Incorporation of the
Company, to be effective upon the consummation of the Offering.
3.2* By-laws of the Company.
5.1** Opinion of Morgan, Lewis & Bockius LLP regarding legality of the
shares of Common Stock being registered.
10.1*++ 1995 Stock Option Plan.
10.2*++ ViroPharma 401(k) Employee Savings Plan, effective July 1, 1995.
10.3* Lease dated September 19, 1995 between the Company and Centocor
Property Management Corp. II.
10.4* Master Lease Agreement dated September 13, 1995 between the Company
and Comdisco, Inc.
10.5* Master Equipment Lease No. 053-0005 dated December 1, 1995 between the
Company and Phoenix Leasing Incorporated.
10.6*+ Agreement dated December 22, 1995 between the Company and Sanofi.
10.7*+ Collaborative Research Agreement dated as of July 23, 1996 between the
Company and Boehringer Ingelheim Pharmaceuticals, Inc.
10.8* Form of Employment Agreement.
10.9* Form of Indemnification Agreement.
10.10* Form of Employee Stock Purchase Agreement.
10.11* Restricted Stock Purchase Agreement dated as of January 17, 1996, by
and between the Company and Frank Baldino, Jr.
10.12* Series B Convertible Preferred Stock Purchase Agreement dated as of
June 16, 1995 among the Company and each of the entities on the
"Schedule of Purchasers" attached thereto as Schedule A.
10.13* Series C Convertible Preferred Stock Purchase Agreement dated as of
May 30, 1996 among the Company and each of the individuals and
entities on the "Schedule of Purchasers " attached thereto as Schedule
A.
10.14* Form of Warrants to Purchase Series B Preferred Stock dated March 3,
1995 and May 12, 1995.
10.15* Warrant Agreement dated as of September 13, 1995 between the Company
and Comdisco, Inc.
10.16* Amended and Restated Investors' Rights Agreement, dated as of May 30,
1996, by and among the Company and the persons identified on Schedule
A, Schedule B and the Schedule of Founders thereto.
23.1* Consent of KPMG Peat Marwick LLP.
23.2** Consent of Morgan, Lewis & Bockius LLP (to be included in Exhibit
5.1).
24* Power of Attorney (included on signature page).
27* Financial Data Schedule
</TABLE>
- --------
* Filed herewith.
** To be filed by amendment.
+ Portions of this exhibit were omitted and filed separately with the
Secretary of the Commission pursuant to an application for confidential
treatment filed with the Commission pursuant to Rule 406 under the
Securities Act.
++ Compensation plans and arrangements for executives and others.
II-6
<PAGE>
FORM OF AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
VIROPHARMA INCORPORATED
TO BE EFFECTIVE UPON CONSUMMATION OF THE OFFERING
FIRST: The corporate name of the corporation (hereinafter called the
-----
"Corporation") is ViroPharma Incorporated.
SECOND: The address of the registered office of the Corporation in the
------
State of Delaware is located at 32 Loockerman Square, Suite L-100, Dover,
Delaware 19904, County of Kent, and the name of the registered agent of this
Corporation in the State of Delaware at such address is The Prentice-Hall
Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful
-----
business or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware and, in general, to possess and
exercise all the powers and privileges granted by the General Corporation Law of
the State of Delaware or by any other law of Delaware or by the Certificate of
Incorporation, together with any powers incidental thereto, so far as such
powers and privileges are necessary or convenient to the conduct, promotion or
attainment of the business or purposes of the Corporation.
FOURTH: A. The Corporation is authorized to issue two (2) classes of
------
capital stock, to be designated, respectively, Preferred Stock ("Preferred
Stock") and Common Stock ("Common Stock"). The total number of shares of capital
stock which the Corporation is authorized to issue is Thirty Two Million
(32,000,000). The total number of shares of Common Stock which the Corporation
shall have the authority to issue is Twenty Seven Million (27,000,000). The
total number of shares of Preferred Stock which the Corporation shall have the
authority to issue is Five Million (5,000,000). The Preferred Stock shall have a
par value of $.001 per share, and the Common Stock shall have a par value of
$.002 per share.
B. The Board of Directors of the Corporation is authorized,
subject to limitations prescribed by law and the provisions of this Article
FOURTH, to provide for the issuance of all or any of the shares of Preferred
Stock in one or more series, and by filing a certificate pursuant to the
applicable law of the State of Delaware, to establish from time to time the
number of shares to be included in each such series, and to fix the designation,
powers, preferences and rights of the shares of each such series and the
qualifications, limitations or restrictions thereof.
The authority of the Board of Directors with respect to each
series shall include, but not be limited to, determination as to the following:
(a) The number of shares constituting that series and the
distinctive designation of that series;
<PAGE>
(b) The dividend rate on the shares of that series, if any,
whether dividends shall be cummulative, and if so, from
which date or dates, and the relative rights of priority,
if any, of payment of dividends on shares of that series;
(c) Whether that series shall have voting rights, in addition
to the voting rights provided by law, and, if so, the terms
of such voting rights;
(d) Whether that series shall have conversion privileges, and,
if so the terms and conditions of such conversion,
including, provision for adjustment of the conversion rate
in such events as the Board of Directors shall determine;
(e) Whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such
redemption, including the date or dates upon or after which
they shall be redeemable, and the amount per share payable
in case of redemption, which amount may vary under
different conditions and at different redemption dates;
(f) Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if
so, the terms and amount of such sinking fund;
(g) The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, and the relative rights of
priority, if any, of payment of shares of that series; and
(h) Any other rights, preferences and limitations of that
series.
Unless otherwise provided in the certificate for each such series, shares
of Preferred Stock of any series which shall be issued and thereafter acquired
by the Corporation through purchase, redemption, exchange, conversion or
otherwise shall return to the status of authorized but unissued Preferred Stock.
FIFTH: The Board of Directors of the Corporation shall consist of such
-----
number of the directors as shall be fixed from time to time by resolution of the
Board of Directors. The Board of Directors shall be divided into three classes,
which shall be as nearly equal in number as possible. Directors of each class
shall reserve for a term of three years and until their successors shall have
been elected and qualified. The three initial classes of directors shall be
comprised as follows:
(a) Class I shall be comprised of directors who shall serve
until the annual meeting of stockholders held in the first
year following the year in which the initial classes of
directors were established and until their successors shall
have been elected and qualified.
(b) Class II shall be comprised of directors who shall serve
until the annual meeting of stockholders held in the second
year following the year in which the initial classes of
directors were established and until their successors shall
have been elected and qualified.
<PAGE>
(c) Class III shall be comprised of directors who shall serve
until the annual meeting of stockholders held in the third year following the
year in which the initial classes of directors were established and until their
successors shall have been elected and qualified.
SIXTH: No director of the Corporation shall be personally liable to the
-----
Corporation or any of its stockholders for monetary damages for breach of
fiduciary duty as a director, provided, however, that the foregoing clause shall
not apply to any liability of a director (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of Title 8 of the General Corporation
Law of the State of Delaware, or (iv) for any transaction from which the
director derived an improper personal benefit. Ant repeal or modification of the
foregoing paragraph by the stockholders of the Corporation shall not adversely
affect any right or protection of a director of the Corporation existing at the
time of such repeal or modification.
<PAGE>
BY-LAWS
OF
VIROPHARMA, INC.
- --------------------------------------------------------------------------------
ARTICLE I
Stockholders
------------
Section 1.1. Annual Meetings. An annual meeting of stockholders shall
---------------
be held for the election of directors at such date, time and place, either
within or without the State of Delaware, as may be designated by resolution of
the Board of Directors from time to time. Any other proper business may be
transacted at the annual meeting.
Section 1.2. Special Meetings. Special meetings of stockholders may be
----------------
called at any time by the Chairman of the Board, if any, the Vice Chairman of
the Board, if any, the President or the Board of Directors, to be held at such
time and place either within or without the State of Delaware as may be stated
in the notice of the meeting. A special meeting of stockholders shall be called
by the Secretary upon the written request, stating the purpose of the meeting,
of stockholders who together own of record 25% of the outstanding stock of any
class entitled to vote at such meeting.
Section 1.3. Notice of Meetings. Whenever stockholders are required or
------------------
permitted to take any action at a meeting, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise provided by law, the written notice of any meeting
shall be given not less than ten nor more than sixty days before the date of the
meeting to each stockholder entitled to vote at such meeting. If mailed, such
notice shall be deemed to be given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his address as it appears on the
records of the corporation.
Section 1.4. Adjournments. Any meeting of stockholders, annual or
------------
special, may adjourn from time to time to reconvene at the same or some other
place, and notice need not be given of any such adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the 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 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.
<PAGE>
-2-
Section 1.5. Quorum. At each meeting of stockholders, except where
------
otherwise provided by law or the certificate of incorporation or these by-laws,
the holders of a majority of the outstanding shares of each class of stock
entitled to vote at the meeting, present in person or by proxy, shall constitute
a quorum. In the absence of a quorum, the stockholders so present may, by
majority vote, adjourn the meeting from time to time in the manner provided in
Section 1.4 of these by-laws until a quorum shall attend.
Section 1.6. Organization. Meetings of stockholders shall be presided over
------------
by the Chairman of the Board, if any, or in his absence by the Vice Chairman of
the Board, if any, or in his absence by the President, or in his absence by a
Vice President, or in the absence of the foregoing persons by a chairman
designated by the Board of Directors, or in the absence of such designation by a
chairman chosen at the meeting. The Secretary shall act as secretary of the
meeting, but in his absence the chairman of the meeting may appoint any person
to act as secretary of the meeting.
Section 1.7. Voting; Proxies. Unless otherwise provided in the certificate
---------------
of incorporation, each stockholder entitled to vote at any meeting of
stockholders shall be entitled to one vote for each share of stock held by him
which has voting power upon the matter in question. Each stockholder entitled to
vote at a meeting of stockholders or to express consent or dissent to corporate
action in writing without a meeting may authorize another person or persons to
act for him by proxy, but no such proxy shall be voted or acted upon after three
years from its date, unless the proxy provides for a longer period. A duly
executed proxy shall be irrevocable if it states that it is irrevocable and if,
and only as long as, it is coupled with an interest sufficient in law to support
an irrevocable power. A stockholder may revoke any proxy which is not
irrevocable by attending the meeting and voting in person or by filing an
instrument in writing revoking the proxy or another duly executed proxy bearing
a later date with the Secretary of the corporation. Voting at meetings of
stockholders need not be by written ballot and need not be conducted by
inspectors unless the holders of a majority of the outstanding shares of all
classes of stock entitled to vote thereon present in person or by proxy at such
meeting shall so determine. At all meetings of stockholders for the election of
directors, a plurality of the votes cast shall be sufficient to elect. All other
elections and questions shall, unless otherwise provided by law or by the
certificate of incorporation or these by-laws, be decided by the vote of the
holders of a majority of the outstanding shares of all classes of stock entitled
to vote thereon present in person or by proxy at the meeting.
Section 1.8. Fixing Date for Determination of Stockholders of Record. In
-------------------------------------------------------
order that the corporation may determine the stockholders entitled to notice of
or to vote at any meeting of stockholders or any adjournment thereof, or to
express consent to corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or
<PAGE>
-3-
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which shall
not be more than sixty nor less than ten days before the date of such meeting,
nor more than sixty days prior to any other action. If no record date is fixed:
(1) 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 day
next preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held; (2) the record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors is necessary, shall be the day on which the first
written consent is expressed; and (3) 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. 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; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
Section 1.9. List of Stockholders Entitled to Vote. The Secretary shall
-------------------------------------
prepare and make, at least ten 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 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 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. Upon the willful
neglect or refusal of the directors to produce such a list at any meeting for
the election of directors, they shall be ineligible for election to any office
at such meeting. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list of stockholders or
the books of the corporation, or to vote in person or by proxy at any meeting of
stockholders.
Section 1.10. Consent of Stockholders in Lieu of Meeting. Any action
------------------------------------------
required by law to be taken at any annual or special meeting of stockholders of
the corporation, or any action which may be taken at any annual or special
meeting of such stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent 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. Prompt notice of
<PAGE>
-4-
the taking of the corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented in
writing.
ARTICLE II
Board of Directors
------------------
Section 2.1. Number; Qualifications. The Board of Directors shall consist
----------------------
of four or more members, the number thereof to be determined from time to time
by resolution of the Board of Directors. Directors need not be stockholders.
Section 2.2. Election; Resignation; Removal; Vacancies. Until the first
-----------------------------------------
annual meeting of stockholders or until successors or additional directors are
duly elected and qualified, the Board of Directors shall consist of the persons
elected as such by the incorporator. At the first annual meeting of stockholders
and at each annual meeting thereafter, the stockholders shall elect directors,
each to hold office until the next succeeding annual meeting or until his
successor is elected and qualified or until his earlier resignation or removal.
Any director may resign at any time upon written notice to the corporation. The
stockholders may remove any director with or without cause at any time. Except
as otherwise provided in the Certificate of Incorporation, any vacancy occurring
in the Board of Directors for any cause may be filled by a majority of the
remaining members of the Board of Directors, although such majority is less than
a quorum, or by a plurality of the votes cast at a meeting of Stockholders, and
each director so elected shall hold office until the next succeeding annual
meeting of stockholders or until his successor is elected and qualified or until
his earlier resignation or removal.
Section 2.3. Regular Meetings. Regular meetings of the Board of Directors
----------------
may be held at such places within or without the State of Delaware and at such
times as the Board of Directors may from time to time determine, and if so
determined notices thereof need not be given.
Section 2.4. Special Meetings. Special meetings of the Board of Directors
----------------
may be held at any time or place within or without the State of Delaware
whenever called by the Chairman of the Board, if any, by the Vice Chairman of
the Board, if any, by the President or by one-third of the members of the Board
of Directors. Reasonable notice thereof shall be given by the person or persons
calling the meeting.
Section 2.5. Telephonic Meetings Permitted. Members of the Board of
------------------------------
Directors, or any committee designated by the Board, may participate in a
meeting of such Board or committee by means of conference telephone or similar
communications equipment by means
<PAGE>
-5-
of which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this by-law shall constitute presence in
persons at such meeting.
Section 2.6. Quorum; Vote Required for Action. At all meetings of the
--------------------------------
Board of Directors [_____] percent ([___]%) of the entire Board shall constitute
a quorum for the transaction of business. Except in cases in which the
certificate of incorporation or these by-laws otherwise provide, the vote of a
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors.
Section 2.7 Organization. Meetings of the Board of Directors shall be
------------
presided over by the Chairman of the Board, if any, or in his absence by the
Vice Chairman of the Board, if any, or in his absence by the President, or in
their absence by a chairman chosen at the meeting. The Secretary shall act as
secretary of the meeting, but in his absence the chairman of the meeting may
appoint any person to act as secretary of the meeting.
Section 2.8 Informal Action by Directors. Unless otherwise restricted by
----------------------------
the certificate of incorporation or these by-laws, 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 of all members of the Board or
such 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.
ARTICLE III
Committees
----------
Section 3.1. Committees. The Board of Directors may, by resolution passed
----------
by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. Unless otherwise prohibited by a resolution of the Board of
Directors, in the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in place of any
such absent or disqualified member. Any such committee, to the extent provided
in the resolution of the Board of Directors, shall have and may exercise all the
powers and authority 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 to all papers which may require it; but no such committee shall have
power or authority
<PAGE>
-6-
in reference to amending the certificate of incorporation of the corporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of dissolution, or amending these
by-laws, declaring a dividend or authorizing the sale, offering or issuance of
stock.
Section 3.2. Committee Rules. Unless the Board of Directors otherwise
---------------
provides, each committee designated by the Board may make, alter and repeal
rules for the conduct of its business. In the absence of such rules each
committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article II of these by-laws.
ARTICLE IV
Officers
--------
Section 4.1. Executive Officers; Election; Qualifications; Term of Office;
------------------------------------------------------------
Resignation; Removal; Vacancies. The Board of Directors shall choose a Chief
- -------------------------------
Executive Officer, a President and a Secretary, and it may, if it so determines,
choose a Chairman of the Board and a Vice Chairman of the Board from among its
members. The Board of Directors may also choose one or more Vice Presidents, one
or more Assistant Secretaries, a Treasurer and one or more Assistant Treasurers.
Each such officer shall hold office until the first meeting of the Board of
Directors after the annual meeting of stockholders next succeeding this
election, and until his successor is elected and qualified or until his earlier
resignation or removal. Any officer may resign at any time upon written notice
to the corporation. The Board of Directors may remove any officer with or
without cause at any time, but such removal shall be without prejudice to the
contractual rights of such officer, if any, with the corporation. Any number of
offices may be held by the same person. Any vacancy occurring in any office of
the corporation by death, resignation, removal or otherwise may be filled for
the unexpired portion of the term by the Board of Directors at any regular or
special meeting.
Section 4.2. Powers and Duties of Executive Officers. The officers of the
---------------------------------------
corporation shall have such powers and duties in the management of the
corporation as may be prescribed by the Board of Directors and, to the extent
not so provided, as generally pertain to their respective offices, subject to
the control of the Board of Directors. The Board of Directors may require any
officer, agent or employee to give security for the faithful performance of his
duties.
<PAGE>
-7-
ARTICLE V
Stock
-----
Section 5.1. Certificates. Every holder of stock 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, if any, or the President or a Vice
President, and by the Treasurer or an Assistant Treasurer, or the Secretary or
an Assistant Secretary, of the corporation, certifying the number of shares
owned by him in the corporation. Any of 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 shall have 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 were such officer, transfer agent or registrar at the date
of issue.
Section 5.2. Lost, Stolen or Destroyed Stock Certificates; Issuance of New
--------------------------------------------------------------
Certificates. The corporation may issue a new certificate of stock in the place
- ------------
of any certificate theretofore 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 any 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.
ARTICLE VI
Miscellaneous
-------------
Section 6.1. Fiscal Year. The fiscal year of the corporation shall be
-----------
determined by resolution of the Board of Directors.
Section 6.2. Seal. The corporate seal shall have the name of the
----
corporation inscribed thereon and shall be in such form as may be approved from
time to time by the Board of Directors.
Section 6.3. Waiver of Notice of Meetings of Stockholders, Directors and
-----------------------------------------------------------
Committees. Any written waiver of notice, signed by the person entitled to
- ----------
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the
<PAGE>
-8-
stockholders, directors, or members of a committee of directors need be
specified in any written waiver of notice.
Section 6.4. Indemnification of Directors, Officers and Employees. The
----------------------------------------------------
corporation shall indemnify to the full extent authorized by law any person
made, or threatened to be made a party to an action or proceeding, whether
criminal, civil, administrative or investigative, by reason of the fact that he,
his testator or intestate is or was a director, officer or employee of the
corporation or any predecessor of the corporation or serves or served any other
enterprise as a director, officer or employee at the request of the corporation
or any predecessor of the corporation.
Section 6.5. Interested Directors; Quorum. No contact or transaction
----------------------------
between the corporation and one or more of its directors or officers, or between
the corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board or committee thereof which authorizes
the contract or transaction, or solely because his or their votes are counted
for such purpose, if: (1) the material facts as to his relationship or interest
and as to the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board or committee in good faith authorizes
the contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or (2) the material facts as to this relationship or interest and as to
the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or (3) the contract or
transaction is fair as to the corporation as of the time it is authorized,
approved or ratified, by the Board of Directors, a committee thereof, or the
stockholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
Section 6.6. Form of Records. Any records maintained by the corporation in
---------------
the regular course of its business, including its stock ledger, books of
account, and minute books, may be kept on, or be in the form of, punch cards,
magnetic tape, photographs, microphotographs, or any other information storage
device, provided that the records so kept can be converted into clearly legible
form within a reasonable time. The corporation shall so convert any records so
kept upon the request of any person entitled to inspect the same.
<PAGE>
-9-
Section 6.7. Amendment of By-laws. These by-laws may be altered or
--------------------
repealed, and new by-laws made, by the Board of Directors with the approval of
the majority of the outstanding shares of capital stock of the corporation.
<PAGE>
VIROPHARMA, INC.
1995 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN
The purpose of the 1995 Stock Option Plan (the "Plan") is (i) to further
the growth and success of ViroPharma, Inc. (the "Company") and its subsidiaries
by enabling selected employees of, and consultants and advisors to, the Company
and any such subsidiaries to acquire shares of Common Stock, $0.002 par value
(the "Common Stock"), of the Company, thereby increasing their personal interest
in such growth and success, and (ii) to provide a means of rewarding outstanding
performance by such persons to the Company and/or its subsidiaries. Options
granted under the Plan may be either "incentive stock options" ("ISOs"),
intended to qualify as such under the provisions of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), or non-qualified stock options
("NSOs"). For purposes of the Plan, the terms "parent" and "subsidiary" shall
mean "parent corporation" and "subsidiary corporation", respectively, as such
terms are defined in Section 424(e) and (f) of the Code. Unless the context
otherwise requires, an ISO or NSO shall hereinafter be referred to as an
"Option".
2. ADMINISTRATION OF THE PLAN
A. ADMINISTRATION
The Plan shall be administered by the Board of Directors of the Company
(the "Board"). Members of the Board who are eligible for Options or have been
awarded Options may vote on any matters affecting the administration of the Plan
or the award of any Options pursuant to the Plan, except that no such member
shall act upon the award of an Option to himself, but any such member may be
counted in determining the existence of a quorum at any meeting of the Board or
Committee during which action is taken with respect to the award of Options to
him.
The Board may at any time appoint a committee consisting of not less
than two persons to administer the Plan on behalf of the Board, subject to such
terms and conditions as the Board may prescribe (the "Committee"). Members of
the Committee shall serve for such period of time as the Board may determine.
From time to time the Board may increase the size of the Committee and appoint
additional members thereto, remove members (with or without cause) and appoint
new members in substitution therefor, fill vacancies however caused, or remove
all members of the Committee and thereafter directly administer the Plan. In the
event that the Company has a class of equity securities registered under the
Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and unless the Board determines otherwise, from the effective date of such
registration until six months after the termination of such registration, all
awards of Options to eligible officers or directors of the Company shall be made
solely by the Board, only if each member is a Disinterested Person (as defined
in Rule 16(b)-3(c)(2)(i), as amended effective May 1,
<PAGE>
1991 or thereafter, promulgated under Section 16 of the Exchange Act), or,
otherwise, by a Committee of two or more directors, each of whom is a
Disinterested Person (as such term is defined in Section 16 of the rules and
regulations promulgated under the Exchange Act).
The Board or the Committee shall have the full power and authority to take
all actions and to make all determinations required or provided for under the
Plan, any Option, or any Option Agreement entered into hereunder and all such
other actions and determinations not inconsistent with the specific terms and
provisions of the Plan deemed by the Board or the Committee to be necessary or
appropriate to the administration of the Plan, any Option, or any Option
Agreement entered into hereunder. Any acts reduced to or approved in writing by
a majority of the members of the Board or the Committee or approved by majority
vote of the Board members or the Committee members shall be the valid acts of
the Board or the Committee, as the case may be. Any interpretation or
construction by the Board or the Committee of any provision of the Plan, of any
Option, or of any Option Agreement entered into hereunder shall be final and
conclusive. No member of the Board or the Committee shall be liable of any
action or determination made in good faith with respect to the Plan, any Option,
or any Option Agreement entered into hereunder.
B. APPLICABILITY OF RULE 16B-3
Those provisions of the Plan which make express reference to Rule 16b-3
shall apply to the Company only at such time as the Company's Common Stock is
registered under the Exchange Act, and then only to such persons as are required
to file reports under Section 16(a) of the Exchange Act (a "Reporting Person").
3. SHARES OF STOCK SUBJECT TO THE PLAN
A. NUMBER OF SHARES
Subject to the provisions of Section 9 (relating to adjustments upon
changes in capital structure and other corporate transactions), the number of
shares of Common Stock issued and delivered pursuant to the exercise of Options
granted under the Plan, shall not exceed 1,200,000 shares. If and to the extent
that Options granted under the Plan terminate expire or are canceled without
having been fully exercised, new Options may be granted under the Plan with
respect to the shares of Common Stock covered by the unexercised portion of such
terminated, expired or canceled Options.
B. CHARACTER OF SHARES
The shares of Common Stock issuable upon exercise of an Option granted
under the Plan shall be (i) authorized but unissued shares of Common Stock, (ii)
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shares of Common Stock held in the Company's treasury or (iii) a combination of
the foregoing.
C. RESERVATION OF SHARES
The number of shares of Common Stock reserved for issuance under the
Plan shall at no time be less than the maximum number of shares which may be
purchased at any time pursuant to outstanding options.
4. ELIGIBILITY
A. GENERAL
Options may be granted under the Plan only to:
(i) persons who are officers or employees of the Company or any of its
subsidiaries at the time of grant; or
(ii) persons who are consultants or advisors to the Company or any of
its subsidiaries as the Board or the Committee shall determine and designate
from time to time before the expiration or termination of the Plan, but subject
to the provisions of the next following paragraph.
Options granted to officers or employees of the Company or any of its
subsidiaries shall be, in the discretion of the Board or the Committee, either
ISOs or NSOs, and Options granted to consultants or advisors shall be NSOs only.
Notwithstanding the foregoing, Options may be conditionally granted to persons
who are prospective employees of the Company or any of its subsidiaries,
provided, however, that any such grants shall become, by their terms, effective
no earlier than the effective date of the grant under this Plan as determined by
the Code, or, if determined by the Board or the Committee, the date on which
such persons actually become employees, in each case as permitted under the
Code.
B. EXCEPTIONS
Notwithstanding anything contained in Section 4.a. to the contrary, no ISO
may be granted under the Plan to an employee who owns, directly or indirectly
(within the meaning of Sections 422(b)(6) and 424(d) of the Code), stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or of its parent, if any, or any of its subsidiaries,
unless (A) the Option Price (as defined in Section 6) of the shares of Common
Stock subject to such ISO is fixed at not less than 110% of the fair market
value (as determined in accordance with Section 6 on the date of the grant) of
such shares and (B) such ISO by its terms is not exercisable after the
expiration of five years from the date that such ISO is granted.
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<PAGE>
5. GRANT OF OPTIONS
A. GENERAL
Options may be granted under the Plan at any time and from time to time
on or prior to the Expiration Date (as defined in Section 13). Subject to the
provisions of the Plan, the Board or the Committee shall have plenary authority,
in its discretion, to determine:
(i) the persons (from among the class of persons eligible under
Section 4 to receive Options under the Plan) to whom Options shall be grated
(the "Optionees");
(ii) the time or times at which Options shall be granted;
(iii) the number of shares subject to each Option;
(iv) the Option Price of the shares subject to each Option, which
price shall not be less than the minimum price under applicable state law, and,
in the case of ISOs, shall be not less than the minimum specified in Section
4.b. or 6 (as applicable);
(v) the time or times when each Option shall become exercisable and
the duration of the exercise period; and
(vi) any restrictions on sale and repurchase rights which shall be
placed upon shares purchased upon exercise of an Option, as contemplated by
Section 10.b.
B. OPTION AGREEMENTS
Each Option granted under the Plan shall be designated as an ISO or an
NSO and shall be subject to the terms and conditions applicable to ISOs and/or
NSOs (as the case may be) set forth in the Plan. In addition, each Option shall
be evidenced by a written agreement (an "Option Agreement"), containing such
terms and conditions and in such form, not inconsistent with the Plan, as the
Board of Committee shall, in its discretion, provide. Such Option Agreements
may differ among Optionees. Each Option Agreement shall be executed by the
Company and the Optionee.
C. NO EVIDENCE OF EMPLOYMENT
Nothing contained in the Plan or in any Option Agreement shall confer
upon any Optionee any right with respect to the continuation of his/her
employment or engagement by the Company or any of its subsidiaries or interfere
in any way with the right of the Company or any such subsidiary at any time to
terminate such employment.
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<PAGE>
or engagement or to increase or decrease the compensation of the Optionee from
the rate in existence at the time of the grant of an Option.
6. OPTION PRICE
Subject to Section 9, the price (the "Option Price") at which each share
of Common Stock subject to an Option granted under the Plan may be purchased
shall be determined by the Board or the Committee at the time the Option is
granted; provided, however, that the Option Price shall not be less than the
minimum price under applicable state law, and, in the case of an ISO, such
Option Price shall in no event be less than 100% (or, in the case of as ISO
granted to a person described in Section 4.b., 110%) of the fair market value of
such share of Common Stock, as determined by the Board or the Committee as set
forth in this Section 6 (the "Fair Market Value"). In the event that the Common
Stock is listed on an established national or regional stock exchange, is
admitted to quotation on the National Association of Securities Dealers
Automated Quotation (NASDAQ) System, or is publicly traded on an established
securities market, the Board or the Committee shall use the closing price of the
Common Stock on such exchange or system or in such market (the highest such
closing price if there is more than one such exchange or market) on the trading
date immediately before the Option is granted (or, if there is no such closing
price, then the Board or the Committee shall use the mean between the highest
bid and lowest asked prices or between the high and low prices on such date) to
determine the Fair Market Value, or, if no sale of the Common Stock has been
made on such day, on the next preceding day on which any such sale shall have
been made. If the Common stock is not so listed, admitted, or traded, the Fair
Market Value of the Common Stock (including, in the case of any repurchase of
shares, any distributions with respect thereto that would be repurchased with
the shares) shall be determined in good faith by a majority of the members of
the Board or the Committee, based on a consideration of all relevant factors,
including recent sale and offer prices in private transactions negotiated at
arms length.
7. EXERCISABILITY OF OPTIONS
A. COMMITTEE DETERMINATION
Each Option granted under the Plan shall be exercisable at such time or
times, or upon the occurrence of such event or as determined by the Board or the
Committee and set forth in the Option Agreement evidencing such Option. No
Option granted to a person who is a "Reporting Person" for purposes of the
Exchange Act, however, shall be exercisable during the first six months after
the date of grant. Subject to the requirement in the immediately preceding
sentence, if an Option is not at the time of grant immediately exercisable, the
Board or the Committee may (i) in the Option Agreement evidencing such Option,
provide for the acceleration of the exercise date or dates of the subject Option
upon the occurrence of specified events, and/or (ii) at the
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<PAGE>
time prior to the complete termination of an Option, accelerate the exercise
date or dates of such Option.
B. AUTOMATIC TERMINATION OF OPTION
The unexercised portion of any Option granted under the Plan shall
automatically terminate and shall become null and void and be of no further
force or effect upon the first to occur of the following:
(i) the tenth anniversary of the date on which such Option is granted
or, in the case of any ISO granted to a person described in Section 4.b., the
fifth anniversary of the date on which such ISO is granted; and
(ii) the expiration of such period of time or the occurrence of such
event as the Board or the Committee in its discretion may provide in the Option
Agreement evidencing such Option.
Each Option granted under the Plan shall be exercisable, in whole or in
part, at any time and from time to time, over a period commencing on or after
the date vesting occurs, or if no vesting is provided, as of the date of grant
and ending upon the expiration or termination of the Option, as the Board or the
Committee shall determine and set forth in the Option Agreement relating to such
Option or any amendment thereto. Without limiting the foregoing, any limitation
or condition on the exercise of an Option contained in any Option Agreement may
be rescinded, modified, or waived by the Board or the Committee, in its sole
discretion, at any time and from time to time after the date of grant of such
Option, so as to accelerate the time at which the Option may be exercised.
Notwithstanding anything contained in the Plan to the contrary, unless
otherwise provided in an Option Agreement, no Options granted under the Plan
shall be affected by any change of duties or position of the Optionee (including
a transfer to or from the Company or one of its subsidiaries), provided that
Optionee continues to be a director, officer, consultant or employee (as the
case may be) of the Company or one of its subsidiaries, and provided further
that if Optionee possesses ISOs prior to the change in duties, and is no longer
deemed to be an employee (as determined by the Code) of the Company as a result
of such change in duties, that Optionee exercises such ISOs within the time
permitted by Section 422 of the Code.
C. LIMITATION ON OPTION
Notwithstanding anything contained in the Plan to the contrary, an Option
shall not be an ISO to the extent the aggregate Fair Market Value (as determined
in accordance with Section 6 on the date of grant) of stock with respect to
which incentive
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<PAGE>
stock options are exercisable for the first time by such Optionee during any
calendar year (under all such plans of the Company and its subsidiaries) exceeds
$ 100,000.
D. PARACHUTE LIMITATIONS
Notwithstanding any other provision of this Plan or of any other
agreement contract, or understanding heretofore or hereafter entered into by the
Optionee with the Company, except an agreement, contract, or understanding
hereafter entered into that expressly modifies or excludes application of this
paragraph (the "Other Agreements"), and notwithstanding any formal or informal
plan or other arrangement for the direct or indirect provision of compensation
to the Optionee (including groups or classes of participants or beneficiaries of
which the Optionee is a member), whether or not such compensation is deferred,
is in cash, or is in the form of a benefit to or for the Optionee (a "Benefit
Plan"), if the Optionee is a "disqualified individual", as defined in Section
280G(c) of the Code, an Option held by that Optionee and any right to receive
any payment or other benefit under this Plan shall not become exercisable or
vested (i) to the extent that such right to exercise, vesting, payment, or
benefit, taking into account all other rights, payments, or benefits to or for
the Optionee under this Plan, all Other Agreements, and all Benefits Plans,
would cause any payment or benefit to the Optionee under this Plan to be
considered a "parachute payment" within the meaning of Section 280G(b)(2) of the
Code as then in effect (a "Parachute Payment") and (ii) if, as a result of
receiving a Parachute Payment, the aggregate after-tax amounts received by the
Optionee from the Company under this Plan, all Other Agreements, and all
Benefit Plans would be less than the maximum after-tax amount that could be
received by him/her without causing any such payment or benefit to be considered
a Parachute Payment. In the event that the receipt of any such right to
exercise, vesting, payment, or benefit under this Plan, in conjunction with all
other rights, payment, or benefits to or for the Optionee under any Other
Agreement or any Benefit Plan would cause the Optionee to be considered to have
received a Parachute Payment under this Plan that would have the effect of
decreasing the after-tax amount received by the Optionee as described in clause
(ii) of the preceding sentence, then the rights, payments or benefits under this
Plan shall be reduced or eliminated as may be necessary in order to avoid having
the payment or benefit to the Optionee under this Plan be deemed to be a
Parachute Payment.
8. PROCEDURE FOR EXERCISE
A. PAYMENT
At the time an Option is granted under the Plan, the Board or the
Committee shall, in its discretion, specify one or more of the following forms
of payment which may be used by an Optionee upon exercise of his/her Option:
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<PAGE>
(i) cash or personal or certified check payable to the Company in an
amount equal to the aggregate Option Price of the shares with respect to which
the Option is being exercised;
(ii) stock certificates (in negotiable form) representing shares of
Common Stock having a Fair Market Value (as determined in accordance with
Section 6 on the date of exercise) equal to the aggregate Option Price of the
shares with respect to which the Option is being exercised; or
(iii) a combination of the methods set forth in clauses (i) and (ii).
B. NOTICE
An Optionee (or other person, as provided in Section 10.c) may exercise
an Option granted under the Plan in whole or in part (but for the purchase of
whole shares only), as provided in the Option Agreement evidencing his/her
Option, by delivering a written notice (the "Notice") to the Secretary of the
Company. The Notice shall:
(i) state that the Optionee elects to exercise the Option and, if
applicable, whether the Option being exercised is an ISO or an NSO;
(ii) state the number of shares with respect to which the Option is
being exercised (the "Optioned Shares");
(iii) state the method of payment for the Optioned Shares (which method
must be available to the Optionee under the terms of his/her Option Agreement);
(iv) state the date upon which the Optionee desires to consummate the
purchase (which date must be prior to the termination of such Option under
Section 7.b.), unless the Optionee encloses with the Notice cash, a check and/or
stock certificates (as the case may be) representing the aggregate Option Price
of such Optioned Shares;
(v) include any representation of the Optionee required pursuant to
Section 10.a.;
(vi) in the event the Option is exercised pursuant to Section 10.c. by
any person other than the Optionee, include evidence to the satisfaction of the
Board or the Committee of the right of such person to exercise the Option with
the Notice; and
(vii) include such further provisions consistent with the Plan as the
Board or the Committee may from time to time require.
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<PAGE>
The exercise date of an Option shall be the date on which the Company
received the Notice from the Optionee.
Within 30 days of the exercise of the Option, the Optionee shall deliver
to the Company a copy of any election filed by the Optionee with the Internal
Revenue Service under Section 83(b) of the Code.
C. ISSUANCE OF CERTIFICATES
The Company shall issue a stock certificate in the name of the Optionee
(or such other person exercising the Option in accordance with the provisions of
Section 10.c.) for the Optioned Shares as soon as practicable after receipt of
the Notice and payment of the aggregate Option Price for such shares. A separate
stock certificate or separate stock certificates shall be issued for any share
of Common Stock purchased pursuant to the exercise of an Option that is an ISO,
which certificate or certificates shall not include any shares of Common Stock
that were purchased pursuant to the exercise of an Option that is an NSO. All
certificates representing the Optioned Shares shall be marked with the legend
set forth in Section 10.a. and, if applicable, Section 10.b. Neither the
Optionee nor any person exercising an Option in accordance with the provisions
of Section 10.c. shall have any privileges as a stockholder of the Company with
respect to any shares of stock subject to an Option granted under the Plan until
the date of issuance of a stock certificate pursuant to this Section 8.c.
9. ADJUSTMENTS
A. CHANGE IN STOCK
If the outstanding shares of Common Stock are increased or decreased or
changed into or exchanged for a different number or kind of shares or other
securities of the Company by reason of any recapitalization, reclassification,
stock split-up, combination of shares, exchange of shares, stock dividend, or
other distribution payable in capital stock, or other increase or decrease in
such shares effected without receipt of consideration by the Company, occurring
after the Effective Date, the number and kinds of shares for the acquisition of
which Options may be granted under the Plan shall be adjusted proportionately
and accordingly by the Company. In addition, the number and kind of shares for
which Options are outstanding shall be adjusted proportionately and accordingly
so that the proportionate interest of the holder of the Option immediately
following such event shall, to the extent practicable, be the same as
immediately before such event. Any such adjustment in outstanding Options shall
not change the aggregate Option Price payable with respect to shares subject the
unexercised portion of the outstanding Option but shall include a corresponding
proportionate adjustment in the Option Price per share.
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<PAGE>
B. REORGANIZATION OR SALE OF ASSETS OR STOCK
Upon the dissolution or liquidation of the Company, or upon a merger,
consolidation, or reorganization of the Company with one or more other
corporations in which the Company is not the surviving corporation, or upon a
sale or other transfer of substantially all of the assets of the Company to
another corporation, or upon any transaction (including, without limitation, a
merger or reorganization in which the Company is the surviving corporation)
approved by the Board of Directors that results in any person or entity (other
than persons who are shareholders of the Company at the time the Plan is
approved by the shareholders and other than a corporation or other trade or
business that is controlled by or under common control with the Company,
determined in accordance with the principles of Sections 414(b) and 414(c) of
the Code and the regulation thereunder) owning 80 percent or more of the
combined voting power, or 80 percent or more of the total value, of all classes
of stock of the Company, the Plan and all Options outstanding hereunder shall
terminate, except to the extent provision is made in writing in connection with
such termination for the continuation of the Plan and/or the assumption of such
Options theretofore granted, or for the substitution for such Option of new
options covering the stock or a successor corporation, or a parent or subsidiary
thereof, with appropriate adjustment as to the number and kinds of shares and
exercise prices, in which event the Plan and Options theretofore granted shall
continue in the manner and under the terms so provided. In the event of any
such termination of the Plan, each individual holding an Option shall have the
right (subject to the Plan's general limitations on exercise), immediately
before the occurrence of such termination and during such period occurring
before such termination as the Board or the Committee, in its sole discretion,
shall determine and designate, to exercise such Option in whole or in part,
subject to the limitations on the exercisability of an Option (including the
acceleration of such exercisability) under Section 7.d. Unless the Board or the
Committee otherwise provides in an Option Agreement for the imposition of such
limitations on the exercisability of an Option, the Option may be exercised
before termination without regard to any Installment limitation or other
condition on exercise imposed pursuant to the terms of the Plan, but subject to
the limitations on the exercisability of an Option (including the acceleration
of such exercisability) under Section 7.d. The Board or the Committee shall send
written notice of an event that will result in such a termination to all
individuals who hold Option not later than the time at which the Company give
notice thereof to its stockholders.
C. SPECIAL RULES
The following rules shall apply in connection with Section 9.a. and 9.b.
above:
(i) no fractional shares shall be issued as a result of any such
adjustment, and any fractional shares resulting from the computations pursuant
to Section 9.a. and 9.b. shall be eliminated from the respective Options.
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<PAGE>
(ii) no adjustment shall be made for cash dividends or the issuance to
shareholders or rights to subscribe for additional shares of Common Stock or
other securities.
(iii) any adjustment referred to in Section 9.a. and 9.b. shall be made
by the Board or the Committee in its sole discretion and shall be conclusive and
binding on all persons holding Options granted under the Plan.
10. RESTRICTION ON OPTIONS AND OPTIONED SHARES
A. COMPLIANCE WITH SECURITIES LAWS
No Option shall be granted under the Plan, and no shares of Common Stock
shall be issued and delivered upon the exercise of Options granted under the
Plan, unless and until any applicable Federal or state registration, listing
and/or qualification requirements and any other requirements of law or of any
regulatory agencies having jurisdiction shall have been fully complied with,
unless the Board or the Committee has received evidence satisfactory to it that
a prospective Optionee may acquire such shares pursuant to an exemptioin from
registration under the applicable securities laws. Any determination in this
connection by the Board or the Committee shall be final, binding, and
conclusive.
The Committee, in its discretion, may, as a condition to the exercise of
any Option granted under the Plan, require an Optionee to (i) represent in
writing that the Option and the shares of Common Stock received upon exercise of
an Option are being acquired for investment and not with a view to distribution
and (ii) make such other representations and warranties as are deemed necessary
or appropriate by counsel to the Company. Stock certificates representing
unregistered shares of Common Stock acquired upon the exercise of Options shall
bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SHARES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE PLEDGED, HYPOTHECATED, SOLD OR
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SHARES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION
OF COUNSEL TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED.
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<PAGE>
B. RIGHT OF FIRST REFUSAL; RIGHT OF FIRST OFFER
The Board or the Committee, in its discretion, may provide in any Option
Agreement that the Company and /or others shall have a right of first refusal or
right of first offer on the sale or transfer of any shares of Common Stock
issued upon exercise of an Option granted under the Plan, and /or rights of
repurchase for such shares of Common Stock upon the termination of the
Optionee's employment with or engagement by the Company, in the manner provided
therein, such right of first refusal, right of first offer and/or right or
repurchase to expire upon the consummation of the initial public offering of
Common Stock registered under the Securities Act of 1933 (the "Securities Act").
Any certificate representing shares of Common Stock issued pursuant to an Option
Agreement containing a right of first refusal, right of first offer and/or right
of repurchase shall bear the following legend:
THE TRANSFER OF THE SHARES REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO RIGHTS OF REPURCHASE, AND THE TRANSFER OF
SHARES REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED
PURSUANT TO THE PROVISIONS SPECIFIED IN THE STOCK OPTION
AGREEMENT DATED _______________ BETWEEN VIROPHARMA, INC.
AND THE HOLDER OF THIS CERTIFICATE, AND NO TRANSFER OF
THE SHARES REPRESENTED BY THIS CERTIFICATE SHALL BE VALID
OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED.
COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY
WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTI-
FICATE TO THE SECRETARY OF VIROPHARMA, INC."
C. NONASSIGNABILITY OF OPTION RIGHTS
No Option granted under the Plan shall be assignable or otherwise
transferable by the Optionee except by will or by the law of descent and
distribution. An Option may be exercised during the lifetime of the Optionee
only by the Optionee. Except as otherwise provided herein or in any Option
Agreement entered into hereunder, upon the termination of an Optionee's
employment or other relationship with the Company for any reason, Options
exercisable on the date of termination of employment or such other relationship
shall be exercisable by such Optionee (or in the case of the Optionee's death
subsequent to termination of employment or such other relationship, by the
Optionee's executor(s) or administrator(s)) for a period of three (3) months
from the date of the Optionee's termination of employment or such other
relationship. In the event an Optionee is rendered mentally or physically
incapable of performing his or her assigned duties for a period of 90
consecutive days or longer, or for 90 days during any six-month period (a
"Disability") or dies during his employment or engagement by the Company or any
of its subsidiaries, or during any period specified in the Option Agreement
following the date of termination of such employment or
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<PAGE>
engagement, the Option shall thereafter be exercisable during the twelve (12)
month period following the date of such Disability or death by his/her
executors, administrators or legal representatives to the full extent to which
such Option was exercisable by the Optionee at the time of his or her
Disability or death. Notwithstanding the foregoing, if Optionee shall commence
any employment or engagement during such 90 day period after the date of a
termination other than due to Optionee's death or Disability, or during such 12
month period after the date of a termination due to Optionee's Disability, with
or by a competitor of the Company (including, but not limited to, full or
part-time employment or independent consulting work), as determined solely in
the judgment of the Board or the Committee, all Options held by such Optionee
which have not yet been exercised shall terminate immediately upon the
commencement therof.
D. REPURCHASE RIGHTS
In the event of termination for cause, the Company shall have the right
to repurchase at the option exercise price (or such other amount as determined
by the Board or the Committee) all or part the shares obtained as a result of
the exercise of an Option and in the event of any other termination, the Company
shall have the right to repurchase such shares at Fair Market Value as
determined by the Board or the Committee in accordance with Section 6 above. To
the extent consistent with terms of any option agreement, the Company may retain
the right to assign its right to repurchase shares to any person, in which case
the assignee shall have all rights and be entitled to all benefits with respect
thereto afforded to the Company under this Plan and the relevant agreement.
11. CANCELLATION AND NEW GRANT OF OPTIONS, ETC.
The Board or the Committee shall have the authority to effect, at any
time and from time to time, with the consent of the affected Optionees, (i) the
cancellation of any or all outstanding Options under the Plan and the grant in
substitution therefor of new Options under the Plan covering the same or
different numbers of shares of Common Stock and having an Option Price per share
which may be higher than the Option Price per share of the canceled Option or
(ii) the amendment of the terms of any and all outstanding Options under the
Plan to provide an Option Price per share which may be lower or higher than the
then-current exercise price per share of such outstanding Options.
12. EFFECTIVE DATE OF PLAN
This Plan shall become effective on the date (the "Effective Date") of
its adoption by the Board; provided, however, that it shall become limited to a
non-qualified stock option plan if the Plan is not approved by the holders of a
majority of the Company's outstanding voting stock within one year (365 days) of
its adoption by the Board. The
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Board may grant Options hereunder prior to approval of the Plan or any material
amendments thereto by the holders of a majority of the Company's outstanding
voting stock: provided, however, that any and all Options so granted
automatically shall be converted into NSOs if the Plan is not approved by such
stockholders within 365 days of its adoption or material amendment.
13. EXPIRATION AND TERMINATION OF PLAN
Except with respect to any Option then outstanding, the Plan shall expire
on (i) the tenth anniversary of the date on which the Plan is adopted by the
Board, (ii) the tenth anniversary of the date on which the Plan is approved by
the shareholders of the Company, or (iii) the date as of which the Board, in its
sole discretion, determines that the Plan shall terminate, whichever is the
first to occur (the "Expiration Date"). Any Options outstanding as of the
Expiration Date shall remain in effect until they have been exercised or have
terminated or expired by their respective terms.
14. AMENDMENT OF PLAN
The Board may at any time prior to the Expiration Date modify and amend the
Plan in any respect; provided, however, that the approval of the Company's
shareholders by at least a majority of the votes cast at a duly held meeting of
shareholders of the Company at which a quorum representing a majority of all the
outstanding shares of voting stock of the Company is present, either in person
or by proxy, and voting on the amendment or by written consent in accordance
with applicable state law and certificate of incorporation of the Company, will
be required for any amendment which (i) changes the class of persons eligible
for the grant of Options, as specified in Section 4, (ii) increases (unless
pursuant to Section 9) the maximum number of shares subject to Options granted
under the Plan, as specified in Section 3, or (iii) materially increases
benefits accruing to participants under the Plan, within the meaning of Rule
16b-3.
15. DISQUALIFYING DISPOSITIONS
If stock acquired by exercise of an ISO granted under the Plan is disposed
of within two years following the date of grant of the ISO or one year following
the transfer of the Optioned Shares to the Optionee (a "disqualifying
disposition"), the holder of the Optioned Shares shall, immediately prior to
such disqualifying disposition, notify the Company in writing of the date and
terms of such disposition and provide such other information regarding the
disposition as the Company may reasonably require.
16. WITHHOLDING TAXES
a. The Company shall have the right to deduct from payments of any kind
otherwise due to the Optionee any Federal, state or local taxes of any kind
required by
-14-
<PAGE>
law to be withheld with respect to any shares issued upon exercise of Option
under the Plan. At the time of exercise, the Optionee shall pay to the Company
any amount that the Company may reasonably determine to be necessary to satisfy
such withholding obligation. Subject to the prior approval of the Company,
which may be withheld by the Company in its sole discretion, the Optionee may
elect to satisfy such obligation, in whole or in part, (i) by causing the
Company to withhold shares of Common Stock otherwise issuable pursuant to the
exercise of an option or (ii) by delivering to the Company shares of Common
Stock already owned by the Optionee. The shares so delivered or withheld shall
have a Fair Market Value equal to such withholding obligations. The Fair Market
Value of the shares used to satisfy such withholding obligation shall be
determined by the Company in the manner set forth in Section 6 above as of the
date that the amount of tax to be withheld is to be determined. An Optionee who
has made an election pursuant to this Section 16(a) may only satisfy his/her
withholding obligation with shares of Common Stock which are not subject to any
forfeiture, unfulfilled vesting, or other similar requirements.
b. Notwithstanding the foregoing, in the case of a Reporting Person, no
election to use shares for the payment of withholding taxes shall be effective
unless made in compliance with any applicable requirements of Rule 16b-3(e) or
any successor rule under the Exchange Act.
17. OTHER PROVISIONS
Each option granted under the Plan may contain such other terms and
conditions not inconsistent with the Plan as may be determined by the Board of
Directors or the Committee, in its sole discretion. Notwithstanding the
foregoing, each ISO granted under the Plan shall include those terms and
conditions which are necessary to qualify the ISO as an "incentive stock option"
within the meaning of Section 422 of the Code or the regulation thereunder and
shall not include any terms or conditions which are inconsistent therewith.
18. SEVERABILITY
If any provision of the Plan or any Option Agreement shall be determined to
be illegal or unenforceable by any court of law in any jurisdiction, the
remaining provisions hereof and thereof shall be severable an enforceable in
accordance with their terms, and all provisions shall remain enforceable in any
other jurisdiction.
19. GOVERNING LAW
The validity and construction of this Plan and the instrument evidencing
the Options granted hereunder shall be governed by the laws of the Commonwealth
of Pennsylvania.
- 15 -
<PAGE>
-16-
<PAGE>
Prototype Cash or Deferred
Profit-Sharing Plan #001
Standardized Adoption Agreement
Prototype Cash or Deferred
Profit-Sharing Plan & Trust/Custodial Account STERLING TRUST COMPANY
- -------------------------------------------------------------------------------
The Employer named below hereby establishes a Cash or Deferred Profit-
Sharing Plan for eligible Employees as provided in this Adoption Agreement and
the accompanying Basic Prototype Plan and Trust/Custodial Account Basic Plan
Document #04.
* 1. EMPLOYER INFORMATION
NOTE: If multiple Employers are adopting the Plan, complete this section
based on the lead Employer. Additional Employers may adopt this Plan by
attaching executed signature pages to the back of the Employer's Adoption
Agreement.
(a) NAME AND ADDRESS:
ViroPharma Inc.
-------------------------------------------------------------------
1250 S. Collegeville Road
-------------------------------------------------------------------
Collegeville, PA 19426
-------------------------------------------------------------------
(b) TELEPHONE NUMBER: 610-983-5887
--------------------------------------------------
(c) TAX ID NUMBER: 23-2789550
-----------------------------------------------------
(d) FORM OF BUSINESS:
[_] (i) Sole Proprietor
[_] (ii) Partnership
[X] (iii) Corporation
[_] (iv) "S" Corporation (formerly known as Subchapter S)
[_] (v) Other:
--------------------------------------------------
(e) NAME OF INDIVIDUAL AUTHORIZED TO ISSUE INSTRUCTIONS TO THE
TRUSTEE/CUSTODIAN:
Claude H. Nash
-------------------------------------------------------------------
-------------------------------------------------------------------
(f) NAME OF PLAN: ViroPharma 401K Employee Savings Plan
------------------------------------------------------
(g) THREE DIGIT PLAN NUMBER
FOR ANNUAL RETURN/REPORT: 001
------------------------------------------
* 2. EFFECTIVE DATE
(a) This is a new Plan having an effective date of July 1, 1995
---------------------
(b) This is an amended Plan.
The effective date of the original Plan was
------------------------
The effective date of the amended Plan is
------------------------
(c) If different from above, the Effective Date for the Plan's Elective
Deferral provisions shall be
---------------------------------------
* 3. DEFINITIONS
(a) "COLLECTIVE OR COMMINGLED FUNDS" (Applicable to institutional
Trustees only.) Investment in collective or commingled funds as
permitted at paragraph 13.3(b) of the Basic Plan Document #04 shall
only be made to the following specifically named fund(s):
-------------------------------------------------------------------
-------------------------------------------------------------------
-------------------------------------------------------------------
Funds made available after the execution of this Adoption Agreement
will be listed on schedules attached to the end of this Adoption
Agreement.
(b) "COMPENSATION" Compensation shall be determined on the basis of the:
[X] (i) Plan Year.
[_] (ii) Employer's Taxable Year.
[_] (iii) Calendar Year.
Compensation shall be determined on the basis of the following
safeharbor definition of Compensation in IRS Regulation
Section 1414(s)-1(c):
[_] (iv) Code Section 6041 and 6051 Compensation.
[X] (v) Code Section 3401(a) Compensation, or
[_] (vi) Code Section 415 Compensation.
Compensation [_] shall [X] shall not include Employer contributions
made pursuant to a Salary Savings Agreement which are not includable
in the gross income of the Employee for the reasons indicated in the
definition of Compensation at 1.12 of the Basic Plan Document #04.
For purposes of the Plan, Compensation shall be limited to $ N/A
--------
the maximum amount which will be considered for Plan purposes. If an
amount is specified, it will limit the amount of contributions
allowed on behalf of higher compensated Employees. Completion of this
section is not intended to coordinate with the $200,000 of Code
Section 415(d), thus the amount should be less than $200,000 as
adjusted for cost-of-living increases.
* (c) ENTRY DATE
[_] (i) The first day of the Plan Year nearest the date on which an
Employee meets the eligibility requirements.
[_] (ii) The earlier of the first day of the Plan Year or the first
day of the seventh month of the Plan Year coinciding with
or following the date on which an Employee meets the
eligibility requirements.
[_] (iii) The first day of the Plan Year following the date on which
the Employee meets the eligibility requirements. If this
election is made the Service requirement at 4(a)(ii) may
not exceed 1/2 year and the age requirement at 4(b)(ii) may
not exceed 20-1/2.
[X] (iv) The first day of the month coinciding with or following the
date on which an Employee meets the eligibility
requirements.
[_] (v) The first day of the Plan Year, or the first day of the
fourth month, or the first day of the seventh month or the
first day of the tenth month, of the Plan Year coinciding
with or following the date on which an Employee meets the
eligibility requirements.
(d) HOURS OF SERVICE shall be determined on the basis of the method
selected below. Only one method may be selected. The method
selected shall be applied to all Employees covered under the
Plan as follows:
[X] (i) On the basis of actual hours for which an Employee is
paid or entitled to payment.
(ii) On the basis of days worked. An Employee shall be
credited with ten (10) Hours of Service if under
paragraph 142 of the Basic Plan Document #04 such
Employee would be credited with at least one (1)
Hour of Service during the Day.
(iii) On the basis of weeks worked. An Employee shall be
credited with forty-five (45) Hours of Service if
under paragraph 142 of the Basic Plan Document #04
such Employee would be credited with at least one (1)
Hour of Service during the week.
(iv) On the basis of semi-monthly payroll periods. An
Employee shall be credited with ninety-five (95)
Hours of Service if under paragraph 1.42 of the Basic
Plan Document #04 such Employee would be credited
with at least one (1) Hour of Service during the
semi-monthly payroll period.
(v) On the basis of months worked. An Employee shall be
credited with one-hundred-ninety (190) Hours of
Service if under paragraph 1.42 of the Basic Plan
Document #04 such Employee would be credited with at
least one (1) Hour of Service during the month.
(e) LIMITATION YEAR--The 12 consecutive month period commencing on
July 1 and ending on June 30 if applicable, the Limitation Year
------ -------
will be a short Limitation Year commencing on
------------
and ending on . Thereafter the Limitation Year
------------
shall end on the date last specified above.
<PAGE>
(f) NET PROFIT
[X] (i) Not applicable (profits will not be required for any
contributions to the Plan).
[_] (ii) As defined in paragraph 1.49 of the Basic Plan Document #04.
[_] (iii) Shall be defined as:
___________________________________________________________
___________________________________________________________
(Only use if definition in paragraph 1.49 of the Basic Plan
Document #04 is to be superseded.)
* (g) PLAN YEAR - The 12-consecutive month period commencing on July 1 and
---- --
ending June 30. If applicable, the first Plan Year will be a short
---- --
Plan Year commencing on ____ __ and ending on ____ __. Thereafter, the
Plan year shall end on the date last specified above.
(h) QUALIFIED EARLY RETIREMENT AGE - For purposes of making distributions
under the provisions of a Qualified Domestic Relations Order, the
Plan's Qualified Early Retirement Age with regard to the Participant
against whom the order is entered [X] shall [_] not be the date the
order is determined to be qualified. If "shall" is elected, this will
only allow payout to the alternate payee(s).
(i) QUALIFIED JOINT AND SURVIVOR ANNUITY - The safe-harbor provisions of
paragraph 8.7 of the Basic Plan Document #04 [X] are [_] are not
applicable. If not applicable, the survivor annuity shall be 100%
---
(50%, 66-2/3%,75%, or 100%) of the annuity payable during the lives of
the Participant and Spouse. If no answer is specified, 50% will be
used.
(j) TAXABLE WAGE BASE (paragraph 1.79)
[X] (i) Not Applicable - Plan is not integrated with Social
Security.
[_] (ii) The maximum earnings considered wages for such Plan Year
under Code Section 3121(a).
[_] (iii) _____% (not more than 100%) of the amount considered wages
for such Plan Year under Code Section 3121(a).
[_] (iv) $________, provided that such amount is not in excess of the
amount determined under paragraph 3(j)(ii) above.
[_] (v) For the 1989 Plan Year $10,000. For all subsequent Plan
Years, 20% of the maximum earnings considered wages for such
Plan Year under Code Section 3121(a).
NOTE: Using less than the maximum at (ii) may result in a change
in the allocation formula in Section 7.
* (k) VALUATION DATE(S): Allocation to Participant Accounts will be done in
accordance with Article V of the Basic Plan Document #04:
(i) Daily
(ii) Weekly
(iii) Monthly
(iv) Bi-Monthly
[X] (v) Quarterly
[_] (vi) Semi-Annually
[_] (vii) Annually
Indicate Valuation Date(s) to be used by specifying option from list
above:
TYPE OF CONTRIBUTION(S) VALUATION DATE(S)
After-Tax Voluntary Contributions [Section 6] _____________
Elective Deferrals [Section 7(b)] _____________
Matching Contributions [Section 7(c)] _____________
Qualified Non-Elective Contributions [Section 7(d)] _____________
Non-Elective Contributions [Section 7(e), (f), (g)] _____________
Minimum Top-Heavy Contributions [Section 7(i)] _____________
(l) YEAR OF SERVICE
(i) For Eligibility Purposes: The 12-consecutive month period
during which an Employee is credited with 1,000 (not more
than 1,000) Hours of Service.
(ii) For Allocation Accrual Purposes: The 12-consecutive month
period during which an Employee is credited with _____ (not
more than 1,000) Hours of Service. (For Plan Year) beginning
in 1990 and thereafter, if a number greater than 1,000 is
specified it will be deemed to be 501.
(iii) For Vesting Purposes: The 12-consecutive month period during
which an Employee is credited with _____ (not more than
1,000) Hours of Service.
* 4. ELIGIBILITY REQUIREMENTS
(a) SERVICE:
[_] (i) The Plan shall have no service requirement.
[_] (ii) The Plan shall cover only Employees having completed at
least 3 months (not more than three [3]) Years of Service.
--------
If more than one (1) is specified, for Plan Years beginning
in 1989 and later, the answer will be deemed to be one (1).
NOTE: If the eligibility period selected is less than one year,
Employee will not be required to complete any specified
number of Hours of Service to receive credit for such
period.
(b) AGE:
[X] (i) The Plan shall have no minimum age requirement.
[_] (ii) The Plan shall cover only Employees having attained age
_____ (not more than age 21).
(c) CLASSIFICATION:
The Plan shall cover all employees who have met the age and service
requirements with the following exceptions:
[_] (i) No Exceptions
[X] (ii) The Plan shall exclude Employees included in a unit
Employees covered by a collective bargaining agreement
between the Employer and Employee Representatives. If
retirement benefits were the subject of good faith
bargaining. For this purpose, the term "Employee
Representative" does not include an organization more than
half of whose members are Employees who are owners,
officers, or executives of the Employer.
[X] (iii) The Plan shall exclude Employees who are nonresident aliens
and who receive no earned income from the Employer which
constitutes income from sources within the United States.
(d) EMPLOYEES ON EFFECTIVE DATE:
[_] (i) Not Applicable. All Employees will be required to satisfy
both the age and Service requirements specified above.
[X] (ii) Employees employed on the Plan's Effective Date do not have
to satisfy the Service requirements specified above.
[_] (iii) Employees employed on the Plan's Effective Date do not have
to satisfy the age requirements specified above.
* 5. RETIREMENT AGES
(a) NORMAL RETIREMENT AGE:
If the Employer imposes a requirement that Employees retire upon
reaching a specified age, the Normal Retirement Age selected before
may not exceed the Employer imposed mandatory retirement age.
[X] (i) Normal Retirement Age shall be 65 (not to exceed age 65)
---
[_] (ii) Normal Retirement Age shall be the later of attaining age
____(not to exceed age 65) or the _____(not to exceed the
5th) anniversary of the first day of the first Plan Year
which the Participant commenced participation in the Plan.
(b) EARLY RETIREMENT AGE:
[_] (i) Not Applicable
[X] (ii) The Plan shall have an Early Retirement Age of 68 (not less
---
than 55) and completion of 5 Years of Service.
---
* 6. EMPLOYEE CONTRIBUTIONS
[X] (a) Participants shall be permitted to make Elective Deferrals in an
amount form 0% up to 15% of their Compensation.
--- ---
If (a) is applicable, Participants shall be permitted to amend the
Salary Savings Agreements to change the contribution percentage as
provided below:
[_] (i) On the Anniversary Date of the Plan,
[_] (ii) On the Anniversary Date of the Plan and on the finish of
the seventh month of the Plan Year.
<PAGE>
[X] (iii) On the Anniversary Date of the Plan and on the
first day following any Valuation Date, or
[_] (iv) Upon 30 days notice to the Employer.
[_] (b) Participants shall be permitted to make after tax Voluntary
Contributions.
[_] (c) Participants shall be required to make after tax Voluntary
Contributions as follows (Thrift Savings Plan):
[_] (i)_______ % of Compensation.
[_] (ii) A percentage determined by the Employee on his or
her enrollment form.
[_] (d) If necessary to pass the Average Deferral Percentage Test,
Participants [X] may ([_] may not) have Elective Deferrals
recharacterized as Voluntary Contributions.
NOTE: The Average Deferral Percentage Test will apply to contributions
under (a) above. The Average Contribution Percentage Test will apply to
contributions under (b) and (c) above, and may apply to (a).
7. EMPLOYER CONTRIBUTIONS AND ALLOCATION THEREOF
NOTE: The Employer shall make contributions to the Plan in accordance
with the formula or formulas selected below. The Employer's
contribution shall be subject to the limitations contained in Articles
III and X. For this purpose, a contribution for a Plan Year shall be
limited for the Limitation Year which ends with or within such Plan
Year. Also, the integrated allocation formulas below are for Plan Years
beginning in 1989 and later. The Employer's allocation for earlier years
shall be as specified in its Plan prior to amendment for the Tax Reform
Act of 1986.
(a) PROFITS REQUIREMENT:
(i) Current or Accumulated Net Profits are required for:
[_] (A) Matching Contributions.
[_] (B) Qualified Non-Elective Contributions.
[X] (C) discretionary contributions.
(ii) No Net Profits are required for:
[_] (A) Matching Contributions.
[_] (B) Qualified Non-Elective Contributions.
[_] (C) discretionary contributions.
NOTE: Elective Deferrals can always be contributed regardless of
profits.
[_] (b) SALARY SAVINGS AGREEMENT:
The Employer shall contribute and allocate to each Participant's
account an amount equal to the amount withheld from the
Compensation of such Participant pursuant to his or her Salary
Savings Agreement. If applicable, the maximum percentage is
specified in Section 6 above.
An Employee who has terminated his or her election under the
Salary Savings Agreement other than for hardship reasons may not
make another Elective Deferral.
[X] (i) until the first day of the next Plan Year.
[_] (ii) until the first day of the next valuation period.
[_] (iii) for a period of _____ month(s) (not to exceed 12
months.)
[_] (c) MATCHING EMPLOYER CONTRIBUTION [See paragraphs (h) and (i)]:
[_] (i) Percentage Match: The Employer shall contribute
and allocate to each eligible Participant's
account and amount equal to ___% of the amount
contributed and allocated in accordance with
paragraph 7(b) above and (if checked) ___% of [_]
the amount of Voluntary Contributions made in
accordance with paragraph 4.1 of the Basic Plan
Document #04. The Employer shall not match
Participant Elective Deferrals as provided above
in excess of $ ___ or in excess of ___%
Participant's Compensation or if applicable.
Voluntary Contributions in excess of $ ___ or in
excess of ___% of the Participant's Compensation.
In no way will the match on both Elective
Deferrals and Voluntary Contributions exceed a
combined amount of $___ or___ %.
[_] (ii) Discretionary Match: The Employer shall contribute
and allocate to each eligible Participant's
account a percentage of the Participant's
Elective Deferral contributed and allocated in
accordance with paragraph 7(b) above. The Employer
shall set such percentage prior to the end of the
Plan Year. The Employer shall not match
Participant Elective Deferrals in excess of $ ___
or in excess of %___of the Participant's
Compensation.
** (iii) Tiered Match: The Employer shall contribute and
allocate to each Participant's account an amount
equal to-the Participant's contribution to the
extent deferred.
-% of the next-% of the Participant's
contribution the extent deferred.
-% of the next-% of the Participant's
contribution the extent deferred.
NOTE: Percentages specified in (iii) above may not
increase as the percentage of Participant's
contribution increases.
** IRS has determined that this option has the
potential for discrimination. Therefore,
provisions providing for increase matches are no
longer permitted in standardized plans.
[_] (iv) Flat Dollar Match: The Employer shall contribute
and allocate to each Participant's account $___
if Participant defers at least 1% of Compensation.
(v) Percentage of Compensation Match: The Employer
shall contribute and allocate to each
Participant's account ___% of Compensation if the
Participant defers at least 1% of Compensation.
(vi) Proportionate Compensation Match: The Employer
shall contribute and allocate to each Participant
who defers at least 1% of Compensation, an amount
determined by multiplying such Employer Matching
Contribution by a fraction of the numerator of
which is the Participant's Compensation and the
denominator of which is the Compensation of the
Participants eligible to receive such an
allocation. The Employer shall set such
discretionary contribution prior to the end of the
Plan Year.
[_] (vii) Qualified Match: Employer Matching Contributions
will be treated as Qualified Matching
Contributions to the extent as specified below:
[_] (A) All Matching Contributions.
[_] (B) None.
[_] (C) ___% of the Employer's Matching
Contribution.
[_] (D) up to ___% of each Participant's
Compensation.
[_] (E) The amount necessary to meet the [_]
Average Deferral Percentage (ADP) test,
[_] Average Contribution Percentage (ACP)
test, [_] Both the ADP and the ACP tests.
(viii) Matching Contribution Computation Period: The time
period upon which matching contributions will be
based shall be:
[_] (A) Weekly
[_] (B) Bi-weekly
[_] (C) Semi-monthly
[_] (D) Monthly
[_] (E) Quarterly
[_] (F) Semi-annually
[_] (G) Annually
17
<PAGE>
(ix) Eligibility for Match: Employer Matching
Contributions, whether or not Qualified, will only
be made on Employee Contributions not withdrawn
prior to the end of the [_] valuation period [_]
Plan year.
[X] (d) QUALIFIED NON-ELECTIVE EMPLOYER CONTRIBUTION [See paragraphs (h)
and (i)] These contributions are fully vested when contributed.
The Employer shall have the right to make an additional
discretionary contribution which shall be allocated to each
eligible Employee in proportion to his or her Compensation as a
percentage of the Compensation of all eligible Employees. This
part of the Employer's contribution and the allocation thereof
shall be unrelated to any Employee contributions made hereunder.
The amount of Qualified non-Elective Contributions taken into
account for purposes of meeting the ADP and ACP test
requirements is:
(i) All such Qualified non-Elective Contributions.
[X] (ii) The amount necessary to meet [_] the ADP test, [_]
the ACP test, [_] Both the ADP and ACP tests.
Qualified non-Elective Contributions will be made to:
(iii) All Employees eligible to participate.
[X] (iv) Only non-Highly Compensated Employees eligible to
participate.
[X] (e) ADDITIONAL EMPLOYER CONTRIBUTION OTHER THAN QUALIFIED
NON-ELECTIVE CONTRIBUTIONS--NON-INTEGRATED
[See paragraphs (h) and (i)]
The Employer shall have the right to make an additional
discretionary contribution which shall be allocated to each
eligible Employee in proportion to his or her Compensation as a
percentage of the Compensation of all eligible Employees. This
part of the Employer's contribution and the allocation thereof
shall be unrelated to any Employee contributions made hereunder.
[_] (f) ADDITIONAL EMPLOYER CONTRIBUTION--INTEGRATED ALLOCATION FORMULA
[See paragraphs (h) and (i)]
The Employer shall have the right to make an additional
discretionary contribution. The Employer's contribution for the
Plan Year plus any forfeitures shall be allocated to the
accounts of eligible Participants as follows:
(i) First, to the extent contributions and forfeitures are
sufficient, all Participants will receive an allocation
equal to 3% of their Compensation.
(ii) Next, any remaining Employer Contributions and forfeitures
will be allocated to Participants who have Compensation in
excess of the Taxable Wage Base (excess Compensation).
Each such Participant will receive an allocation in the
ratio that his or her excess compensation bears to the
excess Compensation of all Participants. Participants may
only receive an allocation of 3% of excess Compensation.
(iii) Next, any remaining Employer contributions and forfeitures
will be allocated to all Participants in the ratio that
their Compensation plus excess Compensation bears to the
total Compensation plus excess Compensation of all
Participants. Participants may only receive an allocation
of up to 2.7% of their Compensation plus excess
Compensation, under this allocation method. If the Taxable
Wage Base defined at Section 3(j) is less than or equal to
the greater of $10,000 or 20% of the maximum, the 2.7%
need not be reduced. If the amount specified is greater
than the greater of $10,000 or 20% of the maximum Taxable
Wage Base, but not more than 80%, 2.7% must be reduced to
1.3%. If the amount specified is greater than 80% but less
than 100% of the maximum Taxable Wage Base, the 2.7% must
be reduced to 2.4%.
NOTE: If the Plan is not Top-Heavy or if the Top-Heavy minimum
contribution or benefit is provided under another Plan
[see Section 11(c)(ii)] covering the same Employees, sub-
paragraphs (i) and (ii) above may be disregarded and 5.7%,
4.3% or 5.4% may be substituted for 2.7%, 1.3% or 2.4%
where it appears in (iii) above.
(iv) Next, any remaining Employer contributions and forfeitures
will be allocated to all Participants (whether or not they
received an allocation under the preceding paragraphs)
ratio that each Participant's Compensation bears to all
Participant's Compensation.
[_] (g) ADDITIONAL EMPLOYER CONTRIBUTION--ALTERNATIVE INTEGRATED
ALLOCATION FORMULA [See paragraphs (h) and (i)]
The Employer shall have the right to make an additional
discretionary contribution. To the extent that such
contributions are sufficient, they shall be allocated as
follows:
% of each eligible Participant's Compensation plus % of
----- -----
Compensation in excess of the Taxable Wage Base defined at
Section 3(j) hereof. The percentage on excess compensation may
not exceed the lesser of (i) the amount first specified in this
paragraph or (ii) the greater of 5.7% or the percentage rate of
tax under Code Section 3111(a) as in effect on the first day of
the Plan Year attributable to the Old Age (OA) portion of the
OASD provisions of the Social Security Act. If the Employer
specifies a Taxable Wage Base in Section 3(j) which is lower
than the Taxable Wage Base for Social Security purposes (SSTWB)
in effect as of the first day of the Plan Year, the percentage
contributed with respect to excess Compensation must be
adjusted. If the Plan's Taxable Wage Base is greater than the
larger of $10,000 or 20% of the SSTWB but not more than 80% of
the SSTWB, the excess percentage is 4.3%. If the Plan's Taxable
Wage Base is greater than 80% of the SSTWB but less than 100% of
the SSTWB, the excess percentage is 5.4%.
NOTE: Only one plan maintained by the Employer may be integrated with
Social Security.
(h) ALLOCATION OF EXCESS AMOUNTS (Annual Additions)
In the event that the allocation formula above results in an
Excess Amount, such excess shall be:
[_] (i) placed in a suspense account accruing no gains or
losses for the benefit of the Participant.
[X] (ii) reallocated as additional Employer contributions
to all Participants to the extent that they do not
have any Excess Amount.
(i) MINIMUM EMPLOYER CONTRIBUTION UNDER TOP-HEAVY PLANS:
For any Plan Year during which the Plan is Top-Heavy, the sum of
the contributions and forfeitures as allocated to eligible
Employees under paragraphs 7(d), 7(e), 7(f), 7(g) and 9 of this
Adoption Agreement shall not be less than the amount required
under paragraph 14.2 of the Basic Plan Document #04. Top-Heavy
minimums will be allocated to:
[X] (i) all eligible Participants.
[_] (ii) only eligible non-Key Employees who are
Participants.
(j) RETURN OF EXCESS CONTRIBUTIONS AND/OR EXCESS AGGREGATE
CONTRIBUTIONS:
In the event that one or more Highly Compensated Employees is
subject to both the ADP and ACP tests and the sum of such tests
exceeds the Aggregate Limit, the limit will be satisfied by
reducing the:
[_] (i) the ADP of the affected Highly Compensated
Employees.
[_] (ii) the ACP of the affected Highly Compensated
Employees.
[X] (iii) a combination of the ADP and ACP of the affected
Highly Compensated Employees.
8. ALLOCATIONS TO TERMINATED EMPLOYEES
(a) FOR PLAN YEARS BEGINNING PRIOR TO 1990:
(i) For Plan Years beginning prior to 1990, the Employer will
not allocate Employer related contributions to any Participant who terminates
employment during the Plan Year
<PAGE>
(ii) The Employer will allocate Employer related contributions to
Employees who terminate during the Plan Year as a result of:
(1) retirement.
(2) Disability.
(3) death.
(4) other termination provided that the Participant has
completed a Year of Service.
(5) other termination.
(b) FOR PLAN YEARS BEGINNING IN 1990 AND THEREAFTER, the Employer
will allocate Employer related contributions to any Participant
who is credited with more than 500 Hours of Service or is employed
on the last day of the Plan year without regard to the number of
Hours of Service.
The Employer will also allocate Employer related contributions to
any Participant who terminates during the Plan Year without
accruing the necessary Hours of Service if they terminate as a
result of:
[X] (i) retirement.
[X] (ii) Disability.
[X] (iii) death.
* 9. ALLOCATION OF FORFEITURES
NOTE: Subsections (a), (b) and (c) below apply to forfeitures of amounts
other than Excess Aggregate Contributions.
(a) ALLOCATION ALTERNATIVES:
If forfeitures are allocated to Participants, such allocation
shall be done in the same manner as the Employer's contribution.
[X] (i) Not Applicable. All contributions are always fully
vested.
[_] (ii) Forfeitures shall be allocated to Participants in the
same manner as the Employer's Contribution.
If allocation to other Participants is selected, the
allocation shall be as follows:
[1] Amount attributable to Employer discretionary
contributions and Top-Heavy minimums will be
allocated to:
[X] all eligible Participants under the Plan.
[_] only those Participants eligible for an
allocation of matching contributions in the
current year.
[2] Amounts attributable to Employer Matching contri-
butions will be allocated to:
[X] all eligible Participants.
[_] only those Participants eligible for allocations
of matching contributions in the current year.
(iii) Forfeitures shall be applied to reduce the Employer's
contribution for such Plan Year.
(iv) Forfeitures shall be applied to offset administrative
expenses of the Plan. If forfeitures exceed these
expenses, (ii) above shall apply.
(b) DATE FOR REALLOCATION:
NOTE: If no distribution has been made to a former Participant,
subsection (i) below will apply to such Participant even if the
Employer elects (iii) or (iv) below as its normal administrative
policy.
[_] (i) Forfeitures shall be reallocated at the end of the Plan
Year during which the former Participant incurs his or
her fifth consecutive one year Break In Service.
[_] (ii) Forfeitures will be reallocated immediately (as of the
next Valuation Date).
[_] (iii) Forfeitures shall be reallocated at the end of the Plan
Year during which the former Employee incurs his or her
____ (1st, 2nd, 3rd, or 4th) consecutive one year Break
In Service.
[_] (iv) Forfeitures will be reallocated immediately (as of the
Plan Year end).
(c) RESTORATION OF FORFEITURES
If amounts are forfeited prior to five consecutive 1-year Breaks
in Service, the Funds for restoration of account balances will be
obtained from the following resources in the order indicated (fill
in the appropriate number):
[1] (i) Current year's forfeitures.
[3] (ii) Additional Employer contribution.
[2] (iii) Income or gain to the Plan.
(d) FORFEITURES OF EXCESS AGGREGATE CONTRIBUTIONS shall be:
[_] (i) Applied to reduce Employer contributions.
[_] (ii) Allocated, after all other forfeitures under the Plan to
the Matching Contribution account of each non-Highly
Compensated Participant who made Elective Deferrals or
Voluntary Contributions in the ratio which each such
Participant's Compensation for the Plan Year bears to the
total Compensation of all Participants for such Plan
Year. Such forfeitures cannot be allocated to the
account of any Highly Compensated Employee.
Forfeitures of Excess Aggregate Contributions will be so applied
at the end of the Plan Year in which they occur.
10. CASH OPTION
[_] (a) The Employer may permit a Participant to elect to defer to the
Plan:
an amount not to exceed _____ % of any Employer paid cash bonus
made for such Participant for any year. A participant must file an
election to defer such contribution at least fifteen (15) days
prior to the end of the Plan Year. If the Employee fails to make
such an election, the entire Employer paid cash bonus to which the
Participant would be entitled shall be paid as cash and not to the
Plan. Amounts deferred under this section shall be treated for all
purposes as Elective Deferrals. Notwithstanding the above, the
election to defer must be made before the bonus is made available
to the Participants.
[X] (b) Not Applicable.
* 11. LIMITATIONS ON ALLOCATIONS
[X] This is the only Plan the Employer maintains or ever maintained:
therefore, this section is not applicable.
[_] The Employer does maintain or has maintained another Plan (including a
Welfare Benefit Fund or an individual medical account (as defined in
Code Section 415(l)(2)], under which amounts are treated as Annual
Additions) and has completed the proper sections below.
Complete (a), (b) and (c) only if the Employer maintains or ever
maintained another qualified plan, including a Welfare Benefit Fund or
an individual medical account (as defined in Code Section 415(l)(2),
in which any Participant in this Plan is (or was) a participant or
could possibly become a participant.
(a) If the Participant is covered under another qualified Defined
Contribution Plan maintained by the Employer, other than a Master or
Prototype Plan.
[_] (i) the Provisions of Article X of the Basic Plan Document #04
will apply, as if the other plan were a Master or Prototype
Plan:
[_] (ii) Attach provisions stating the method under which the plans
will limit total Annual Additions to the Maximum Permissible
Amount, and will properly reduce any Excess Amounts, in a
manner that precludes Employer discretion.
(b) If a Participant is or ever has been a participant in a Defined
Benefit Plan maintained by the Employer:
Attach provisions which will satisfy the 1.0 limitation of Code
Section 415(e). Such language must preclude Employer discretion. The
Employer must also specify the interest and mortality assumptions used
in determining Present Value in the Defined Benefit Plan.
<PAGE>
- --------------------------------------------------------------------------------
(c) The minimum contribution or benefit required under Code Section 416
relating to Top-Heavy Plans shall be satisfied by:
[_] (i) This Plan.
[_] (ii)
----------------------------------------------------------
----------------------------------------------------------
(Name of other qualified plan of the Employer).
[_] (iii) Attach provisions stating the method under which the
minimum contribution and benefit provisions of Code Section 416
will be satisfied. If a Defined Benefit Plan is or was
maintained, an attachment must be provided showing interest and
mortality assumptions used in the Top-Heavy Ratio.
* 12. VESTING
Employees shall have a fully vested and nonforfeitable interest in any
Employer contribution and the investment earnings thereon made in
accordance with paragraphs (select one or more options) [_] 7(c), [_]
7(e),[_] 7(f),[_] 7(g) and [_] 7(i) hereof. Contributions under
paragraph 7(b), 7(c)(vii) and 7(d) are always fully vested. If one or
more of the foregoing options are not selected such Employer
contributions shall be subject to the vesting table selected by the
Employer.
Each Participant shall acquire a vested and nonforfeitable percentage
in his or her account balance attributable to Employer contributions and
the earnings thereon under the procedures selected below except with
respect to any Plan year during which the Plan is Top-Heavy, in which
case the Two-twenty vesting schedule [Option (b)(iv] shall automatically
apply unless the Employer has already elected a faster vesting schedule.
If the Plan is switched to option (b)(iv), because of its Top-Heavy
status, that vesting schedule will remain in effect even if the Plan
later becomes non-Top-Heavy until the Employer executes an amendment of
this Adoption Agreement indicating otherwise.
(a) COMPUTATION PERIOD:
The computation period for purposes of determining Years of Service
and Breaks in Service for purposes of computing a Participant's non-
forfeitable right to his or her account balance derived from
Employer contributions:
[X] (i) shall not be applicable since Participants are always
fully vested.
[_] (ii) shall commence on the date on which an Employee first
performs an Hour of Service for the Employer and each
subsequent 12-consecutive month period shall commence on
anniversary thereof, or
[_] (iii) shall commence on the first day of the Plan Year during
which an Employee first performs an Hour of Service for
the Employer and each subsequent 12-consecutive month
period shall commence on the anniversary thereof.
A Participant shall receive credit for a year of Service if he or
she completes at least 1,000 Hours of Service (or if lesser, the
number of hours specified at 3(l)(iii) of this Adoption Agreement)
at any time during the 12-consecutive month computation period.
Consequently, a year of Service may be earned prior to the end of
the 12-consecutive month computation period and the Participant
need not be employed at the end or the 12-consecutive month
computation period to receive credit for a Year of Service.
(b) VESTING SCHEDULES:
NOTE: The vesting schedules below only apply to a Participant who has at
least one Hour of Service during or after the 1989 Plan Year. If
applicable, Participants who separated from Service prior to the
1989 Plan Year will remain under the vesting schedule as in effect
in the Plan prior to amendment for the Tax Reform Act of 1986.
(i) Full and immediate Vesting.
<TABLE>
<CAPTION>
YEARS OF SERVICE
1 2 3 4 5 6 7
<S> <C> <C> <C> <C> <C> <C> <C>
(ii) ___% 100%
(iii) ___% ___% 100%
(iv) ___% 20% 40% 60% 80% 100%
(v) ___% ___% 20% 40% 60% 80% 100%
(vi) 10% 20% 30% 40% 60% 80% 100%
(vii) ___% ___% ___% ___% 100%
(viii) ___% ___% ___% ___% ___% ___% 100%
</TABLE>
- --------------------------------------------------------------------------------
NOTE: The percentages selected for schedule (viii) may not be less for
any year than the percentages shown at schedule (v).
[X] All contributions other than those which are fully vested
when contributed will vest under schedule i above.
-------
[_] Contributions other than those which are fully vested when
contributed will vest as provided below:
Vesting
Option Selected Type of Employer Contribution
_______ 7(c) Employer Match on Salary Savings
_______ 7(c) Employer Match on Employee Voluntary
_______ 7(e) Employer Discretionary
_______ 7(f) & (g) Employer Discretionary -
Integrated
(c) SERVICE DISREGARDED FOR VESTING:
[X] (i) Not Applicable. All service shall be considered.
[_] (ii) Service prior to the Effective Date of this Plan or a
predecessor plan shall be disregarded when computing a
Participant's vested and nonforfeitable interest.
[_] (iii) Service prior to a Participant having attained age 18 shall
be disregarded when computing a Participant's vested and
nonforfeitable interest.
* 13. SERVICE WITH PREDECESSOR ORGANIZATION
For purposes of satisfying the Service requirements for eligibility,
Hours of Service shall include Service with the following predecessor
organization(s): (These hours will also be used for vesting purposes.)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
* 14. ROLLOVER/TRANSFER CONTRIBUTIONS
(a) Rollover Contributions, as described at paragraph 4.3 of the Basic
Plan Document #04, [_] shall [X] shall not be permitted. If
permitted, Employees [_] may [_] may not make Rollover Contributions
prior to meeting the eligibility requirements for participation in
the Plan.
(b) TRANSFER CONTRIBUTIONS, as described at paragraph 4.4 of the Basic
Plan Document #04 [_] shall [X] shall not be permitted. If permitted
Employees [_] may [_] may not Transfer Contributions prior to meeting
the eligibility requirements for participation in the Plan.
NOTE: Even if available, the Employer may refuse to accept such
contribution if its Plan meets the safe-harbor rules of paragraph 8.7
of the Basic Plan Document #04.
* 15. HARDSHIP WITHDRAWALS
Hardship withdrawals as provided for in paragraph 6.9 of the Basic Plan
Document #04, [X] are [_] are not permitted.
* 16. PARTICIPANT LOANS
Participant loans, as provided for in paragraph 13.5 of the Basic Plan
Document #04, [_] are [X] are not permitted. If permitted, repayments of
principal and interest shall be repaid to [_] the Participant's segregated
account or [_] the general Fund.
* 17. INSURANCE POLICIES
The insurance provisions of paragraph 13.6 of the Basic Plan Document #04
[_] shall [X] shall not be applicable.
* 18. EMPLOYER INVESTMENT DIRECTION
The Employer investment direction provisions, as set forth in paragraph
13.7 of the Basic Plan Document #04, [X] shall [_] shall not be
applicable.
* 19. EMPLOYEE INVESTMENT DIRECTION
(a) The Employee investment direction provisions, as set forth in
paragraph 13.8 of the Basic Plan Document #04 [X] shall [_] shall not
be applicable.
If applicable, Participants may direct their investments among funds
offered by the Trustee.
<PAGE>
(b) Participants may direct the following kinds of contributions and the
earnings thereon (check all applicable):
[X] (i) All Contributions.
(ii) Elective Deferrals.
(iii) Employee Voluntary Contributions (after-tax).
(iv) Employee Mandatory Contributions (after-tax).
(v) Employer Qualified Matching Contributions.
(vi) Other Employer Matching Contributions.
(vii) Employer Qualified Non-Elective Contributions.
(viii) Employer Discretionary Contributions.
(ix) Rollover Contributions.
(x) Transfer Contributions.
(xi) All of above which are checked, but only to the extent
that the Participant is vested in those contributions.
Note: To the extent that Employee investment direction was previously
allowed, the Trustee shall have the right to either make the assets
part of the general Trust, or leave them as separately invested
subject to the rights of paragraph 13.8.
20. EARLY PAYMENT OPTION
(a) A Participant who separates from Service prior to retirement, death
or Disability [X] may ([_] may not) make application to the Employer
requesting an early payment of his or her vested account balance.
(b) A Participant who has attained age 59-1/2 and who has not separated
from Service ([_] may) [X] may not obtain a distribution of his or
her vested Employer contributions. Distribution can only be made if
the Participant is 100% vested.
(c) A Participant who has attained the Plan's Normal Retirement Age and
who has not separated from Service ([_] may) [X] may not receive a
distribution of his or her vested account balance.
Note: If the Participant has had the right to withdraw his or her account
balance in the past, this right may not be taken away.
Notwithstanding the above, to the contrary, required minimum
distributions will be paid. For timing of distributions, see item
21(a) below.
21. DISTRIBUTION OPTIONS
(a) TIMING OF DISTRIBUTIONS:
In cases of termination for other than death, Disability or
retirement, benefits shall be paid:
[X] (i) As soon as administratively feasible, following the close
of the valuation period during which a distribution is
requested or is otherwise payable.
[_] (ii) As soon as administratively feasible, following the close
of the Plan Year during which a distribution is requested
or is otherwise payable.
[_] (iii) As soon as administratively feasible, following the date
on which a distribution is requested or is otherwise
payable.
[_] (iv) As soon as administratively feasible, after the close of
the Plan Year during which the Participant incurs ______
consecutive one-year Breaks in Service.
[_] (v) Only after the Participant has achieved the Plan's Normal
Retirement Age, or Early Retirement Age, if applicable.
In cases of death, Disability or retirement, benefits shall be
paid:
[X] (vi) As soon as administratively feasible, following the close
of the valuation period during which a distribution is
requested or is otherwise payable.
[_] (vii) As soon as administratively feasible following the close
of the Plan Year during which a distribution is requested
or is otherwise payable.
[_] (viii) As soon as administratively feasible, following the date
on which a distribution is requested or is otherwise
payable.
(b) OPTIONAL FORMS OF PAYMENT:
[X] (i) Lump Sum.
(ii) Installment Payments.
(iii) Life Annuity*
(iv) Life Annuity Term Certain*
Life Annuity with payments guaranteed for _______ period
(not to exceed 20 years, specify all applicable.)
(v) Joint and [_] 50%, [_] 66-2/3%, [_] 75% or [_] 100%
survivor annuity* (specify all applicable).
(vi) Other form(s) as specified:_________________________
* Not available in Plan meeting provisions of paragraph 8.7
Basic Plan Document #04.
(c) RECALCULATION OF LIFE EXPECTANCY:
In determining required distributions under the Plan, Participants
and/or their Spouse (Surviving Spouse) [X] shall ([_] shall not)
have the right to have their life expectancy recalculated annually.
If "shall",
[_] (i) only the Participant shall be recalculated.
[X] (ii) both the Participant and Spouse shall be recalculated.
[_] (iii) who is recalculated shall be determined by the
Participant.
22. SPONSOR CONTACT
Employers should direct questions concerning the language contained and
qualification of the Prototype to:
STERLING TRUST COMPANY
P.O. BOX 2526
WACO, TEXAS 76702-2526
(817) 751-1505
In the event that the Sponsor amends, discontinues or abandons this
Prototype Plan, notification will be provided to the Employer's address
provided on the first page of this Agreement.
* 23. SIGNATURES
Due to the significant tax ramifications, the Sponsor recommends that
before you execute this Adoption Agreement, you contact your attorney or
tax advisor, if any.
(a) EMPLOYER:
Name and address of Employer if different than specified in Section
above.
-------------------------------------------------------------------
-------------------------------------------------------------------
-------------------------------------------------------------------
This agreement and the corresponding provisions of the Plan and
Trust/Custodial Account Basic Plan Document #04 were adopted by the
Employer the 28th day of June, 1995
Signed for the Employer by: Claude H. Nash
---------------------------------------
Title: President & CEO
------------------------------------------------------------
Signature: /s/ Claude H. Nash
--------------------------------------------------------
The Employer understands that its failure to properly complete the
Adoption Agreement may result in disqualification of its Plan.
Employer's Reliance: An Employer who maintains or has ever
maintained or who later adopts any Plan {including, after December
31, 1985, a Welfare Benefit Fund, as defined in Section 419(e) of
the Code which provides post-retirement medical benefits allocated
to separate accounts for Key Employees, as defined in Section
419A(d)(3)] or an individual medical account, as defined in Code
Section 415(I)(2) in addition to this Plan may not rely on the
opinion letter issued by the National Office of the Internal Revenue
Service as evidence that this
<PAGE>
Plan is qualified under Section 401 of the Code. If the Employer who
adopts or maintains multiple Plans wishes to obtain reliance that such
Plan(s) are qualified, application for a determination letter should be
made to the appropriate Key District Director of Internal Revenue. The
Employer understands that its failure to properly complete the Adoption
Agreement may result in disqualification of its plan.
This Adoption Agreement may only be used in conjunction with Basic Plan
Document #04.
* (b) TRUSTEE:
Name of Trustee:
Mark A. McKinlay
-------------------------------
/s/ Mark A. McKinlay
-------------------------------
The assets of the fund shall be invested in accordance with paragraph 13.3
of the Basic Plan Document #04 as a Trust. As such, the Employer's Plan as
contained herein was accepted by the Trustee the
28th day of June, 1995.
---- ---- --
Signed for the Trustee by: Mark McKinlay
--------------
Title: VP R & D & Secretary
----------------------------------
Signature: /s/ Mark A. Mckinlay
------------------------------
(c) CUSTODIAN:
Name of Custodian: STERLING TRUST COMPANY
P.O. BOX 2528
WACO, TEXAS 76702-2528
The assets of the fund shall be invested in accordance with paragraph 13.4
of the Basic Plan Document #04 as a Custodial Account. As such, the
Employer's Plan as contained herein was accepted by the Custodian the
30th day of June, 1995.
---- ---- --
Signed for the Custodian by: Kimberly K. Sharp
------------------
Title: Trust Officer
----------------------------------------
Signature: /s/ Kimberly K. Sharp
------------------------------------
(d) SPONSOR:
The Employer's agreement and the corresponding provisions of the Plan and
Trust Custodial Account Basic Plan, Document #04 were accepted by the
sponsor the 30th day of June, 1995.
---- ---- --
Signed for the Sponsor by: Kimberly K. Sharp
-----------------
Title: Trust Officer
--------------------------------------
Signature: /s/ Kimberly K. Sharp
----------------------------------
<PAGE>
PROTOTYPE CASH OR DEFERRED PROFIT-SHARING PLAN
AND TRUST/CUSTODIAL ACCOUNT
Sponsored By
STERLING TRUST COMPANY
Waco, Texas
BASIC PLAN DOCUMENT #04
FEBRUARY 1993
COPYRIGHT 1993 THE McKAY HOCHMAN COMPANY, INC.
<PAGE>
THIS DOCUMENT IS COPYRIGHTED UNDER THE LAWS OF THE UNTIED STATES. USE,
DUPLICATION OR REPRODUCTION, INCLUDING THE USE OF ELECTRONIC MEANS, IS
PROHIBITED BY LAW WITHOUT THE EXPRESS CONSENT OF THE AUTHOR.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
PARAGRAPH PAGE
- --------- ----
ARTICLE I
DEFINITIONS
<C> <S> <C>
1.1 Actual Deferral Percentage 1
1.2 Adoption Agreement 1
1.3 Aggregate Limit 2
1.4 Annual Additions 2
1.5 Annuity Starting Date 2
1.6 Applicable Calendar Year 2
1.7 Applicable Life Expectancy 3
1.8 Average Contribution Percentage (ACP) 3
1.9 Average Deferral Percentage (ADP) 3
1.10 Break In Service 3
1.11 Code 3
1.12 Compensation 3
1.13 Contribution Percentage 5
1.14 Custodian 6
1.15 Defined Benefit Plan 6
1.16 Defined Benefit (Plan) Fraction 6
1.17 Defined Contribution Dollar Limitation 6
1.18 Defined Contribution Plan 7
1.19 Defined Contribution (Plan) Fraction 7
1.20 Designated Beneficiary 7
1.21 Disability 7
1.22 Distribution Calendar Year 7
1.23 Early Retirement Age 7
1.24 Earned Income 8
1.25 Effective Date 8
1.26 Election Period 8
1.27 Elective Deferral 8
1.28 Eligible Participant 8
1.29 Employee 8
1.30 Employer 9
1.31 Entry Date 9
1.32 Excess Aggregate Contributions 9
1.33 Excess Amount 9
1.34 Excess Contribution 9
1.35 Excess Elective Deferrals 9
1.36 Family Member 9
1.37 First Distribution Calendar Year 10
1.38 Fund 10
1.39 Hardship 10
1.40 Highest Average Compensation 10
1.41 Highly Compensated Employee 10
1.42 Hour Of Service 12
1.43 Key Employee
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
1.44 Leased Employee 12
1.45 Limitation Year 12
1.46 Master Or Prototype Plan 12
1.47 Matching Contribution 12
1.48 Maximum Permissible Amount 12
1.49 Net Profit 13
1.50 Normal Retirement Age 13
1.51 Owner-Employee 13
1.52 Paired Plans 13
1.53 Participant 13
1.54 Participant's Benefit 13
1.55 Permissive Aggregation Group 13
1.56 Plan 13
1.57 Plan Administrator 13
1.58 Plan Year 13
1.59 Present Value 13
1.60 Projected Annual Benefit 14
1.61 Qualified Deferred Compensation Plan 14
1.62 Qualified Domestic Relations Order 14
1.63 Qualified Early Retirement Age 14
1.64 Qualified Joint And Survivor Annuity 14
1.65 Qualified Matching Contribution 15
1.66 Qualified Non-Elective Contributions 15
1.67 Qualified Voluntary Contribution 15
1.68 Required Aggregation Group 15
1.69 Required Beginning Date 15
1.70 Rollover Contribution 15
1.71 Salary Savings Agreement 16
1.72 Self-employed Individual 16
1.73 Service 16
1.74 Shareholder Employee 16
1.75 Simplified Employee Pension Plan 16
1.76 Sponsor 16
1.77 Spouse (Surviving Spouse) 16
1.78 Super Top-Heavy Plan 16
1.79 Taxable Wage Base 16
1.80 Top-Heavy Determination Date 16
1.81 Top-Heavy Plan 16
1.82 Top-Heavy Ratio 17
1.83 Top-Paid Group 18
1.84 Transfer Contribution 18
1.85 Trustee 18
1.86 Valuation Date 19
1.87 Vested Account Balance 19
1.88 Voluntary Contribution 19
1.89 Welfare Benefit Fund 19
1.90 Year Of Service 19
<CAPTION>
ARTICLE II
ELIGIBILITY REQUIREMENTS
<C> <S> <C>
2.1 Participation 20
2.2 Change In Classification Of Employment 20
2.3 Computation Period 20
2.4 Employment Rights 20
2.5 Service With Controlled Groups 20
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
2.6 Owner-Employees 20
2.7 Leased Employees 21
2.8 Thrift Plans 22
<CAPTION>
ARTICLE III
EMPLOYER CONTRIBUTIONS
<C> <S> <C>
3.1 Amount 23
3.2 Expenses And Fees 23
3.3 Responsibility For Contributions 23
3.4 Return Of Contributions 23
<CAPTION>
ARTICLE IV
EMPLOYEE CONTRIBUTIONS
<C> <S> <C>
4.1 Voluntary Contributions 24
4.2 Qualified Voluntary Contributions 24
4.3 Rollover Contribution 24
4.4 Transfer Contribution 25
4.5 Employer Approval Of Transfer Contributions 25
4.6 Elective Deferrals 26
4.7 Required Voluntary Contributions 26
4.8 Direct Rollover Of Benefits 27
<CAPTION>
ARTICLE V
PARTICIPANT ACCOUNTS
<C> <S> <C>
5.1 Separate Accounts 28
5.2 Adjustments To Participant Accounts 28
5.3 Allocating Employer Contributions 29
5.4 Allocating Investment Earnings And Losses 29
5.5 Participant Statements 29
<CAPTION>
ARTICLE VI
RETIREMENT BENEFITS AND DISTRIBUTIONS
<C> <S> <C>
6.1 Normal Retirement Benefits 31
6.2 Early Retirement Benefits 31
6.3 Benefits On Termination Of Employment 31
6.4 Restrictions On Immediate Distributions 33
6.5 Normal Form Of Payment 33
6.6 Commencement Of Benefits 34
6.7 Claims Procedures 34
6.8 In-Service Withdrawals 35
6.9 Hardship Withdrawal 36
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARTICLE VII
DISTRIBUTION REQUIREMENTS
<C> <S> <C>
7.1 Joint And Survivor Annuity Requirements 38
7.2 Minimum Distribution Requirements 38
7.3 Limits On Distribution Periods 38
7.4 Required Distributions On Or After The
Required Beginning Date 38
7.5 Required Beginning Date 39
7.6 Transitional Rule 40
7.7 Designation Of Beneficiary For Death Benefit 42
7.8 Nonexistence Of Beneficiary 42
7.9 Distribution Beginning Before Death 42
7.10 Distribution Beginning After Death 42
7.11 Distribution Of Excess Elective Deferrals 43
7.12 Distributions Of Excess Contributions 44
7.13 Distribution Of Excess Aggregate Contributions 44
<CAPTION>
ARTICLE VIII
JOINT AND SURVIVOR ANNUITY REQUIREMENTS
<S> <C> <C>
8.1 Applicability Of Provisions 46
8.2 Payment Of Qualified Joint And Survivor
Annuity 46
8.3 Payment Of Qualified Pre-Retirement
Survivor Annuity 46
8.4 Qualified Election 46
8.5 Notice Requirements For Qualified Joint
And Survivor Annuity 47
8.6 Notice Requirements For Qualified Pre-
Retirement Survivor Annuity 47
8.7 Special Safe-Harbor Exception For
Certain Profit-Sharing Plans 48
8.3 Transitional Joint And Survivor
Annuity Rules 49
8.9 Automatic Joint And Survivor Annuity
And Early Survivor Annuity 49
8.10 Annuity Contracts 50
<CAPTION>
ARTICLE IX
VESTING
<C> <S> <C>
9.1 Employee Contributions 51
9.2 Employer Contributions 51
9.3 Computation Period 51
9.4 Requalification Prior To Five Consecutive
One-Year Breaks In Service 51
9.5 Requalification After Five Consecutive
One-Year Breaks In Service 51
9.6 Calculating Vested Interest 51
9.7 Forfeitures 52
9.8 Amendment Of Vesting Schedule 52
9.9 Service With Controlled Groups 52
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARTICLE X
LIMITATION ON ALLOCATIONS AND
ANTIDISCRIMINATION TESTING
<S> <C> <C>
10.1 Participation In This Plan Only 53
10.2 Disposition Of Excess Annual Additions 53
10.3 Participation In This Plan And Another
Prototype Defined Contribution Plan,
Welfare Benefit Fund, Or Other Medical
Account Maintained By The Employer 54
10.4 Disposition Of Excess Annual Additions
Under Two Plans 55
10.5 Participation In This Plan And Another
Defined Contribution Plan Which Is Not
A Master Or Prototype Plan 55
10.6 Participation In This Plan And A Defined
Benefit Plan 55
10.7 Average Deferral Percentage (ADP) Test 56
10.8 Special Rules Relating To Application
Of ADP Test 56
10.9 Recharacterization 57
10.10 Average Contribution Percentage (ACP) Test 58
10.11 Special Rules Relating To Application
Of ACP Test 58
<CAPTION>
ARTICLE XI
ADMINISTRATION
<C> <S> <C>
11.1 Plan Administrator 61
11.2 Trustee/Custodian 61
11.3 Administrative Fees And Expenses 62
11.4 Division Of Duties And Indemnification 62
<CAPTION>
ARTICLE XII
TRUST FUND/CUSTODIAL ACCOUNT
<C> <S> <C>
12.1 The Fund 64
12.2 Control Of Plan Assets 64
12.3 Exclusive Benefit Rules 64
12.4 Assignment And Alienation Of Benefits 64
12.5 Determination Of Qualified Domestic
Relations Order (QDRO) 64
<CAPTION>
ARTICLE XIII
INVESTMENTS
<C> <S> <C>
13.1 Fiduciary Standards 66
13.2 Funding Arrangement 66
13.3 Investment Alternatives Of The Trustee 66
13.4 Duties Of The Custodian 67
13.5 Participant Loans 68
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
13.6 Insurance Policies 70
13.7 Employer Investment Direction 71
13.8 Employee Investment Direction 72
<CAPTION>
ARTICLE XIV
TOP-HEAVY PROVISIONS
<C> <S> <C>
14.1 Applicability Of Rules 73
14.2 Minimum Contribution 73
14.3 Minimum Vesting 73
14.4 Limitations On Allocations 74
<CAPTION>
ARTICLE XV
AMENDMENT AND TERMINATION
<C> <S> <C>
15.1 Amendment By Sponsor 75
15.2 Amendment By Employer 75
15.3 Termination 75
15.4 Qualification Of Employer's Plan 75
15.5 Mergers And Consolidations 76
15.6 Resignation And Removal 76
15.7 Qualification Of Prototype 76
ARTICLE XVI
GOVERNING LAW 77
</TABLE>
<PAGE>
PROTOTYPE CASH OR DEFERRED PROFIT-SHARING PLAN AND
TRUST/CUSTODIAL ACCOUNT
Sponsored By
STERLING TRUST COMPANY
The Sponsor hereby establishes the following Prototype Retirement Plan
and Trust/Custodial Account for use by those of its customers who qualify and
wish to adopt a qualified retirement program. Any Plan and Trust/Custodial
Account established hereunder shall be administered for the exclusive benefit of
Participants and their beneficiaries under the following terms and conditions:
ARTICLE I
DEFINITIONS
1.1 Actual Deferral Percentage The ratio (expressed as a percentage and
calculated separately for each Participant) of:
(a) the amount of Employer contributions [as defined at (c) and (d)]
actually paid over to the Fund on behalf of such Participant for the
Plan Year to
(b) the Participant's Compensation for such Plan Year. Compensation will
only include amounts for the period during which the Employee was
eligible to participate.
Employer contributions on behalf of any Participant shall include:
(c) any Elective Deferrals made pursuant to the Participant's deferral
election, including Excess Elective Deferrals, but excluding Elective
Deferrals that are either taken into account in the Contribution
Percentage test (provided the ADP test is satisfied both with and
without exclusion of these Elective Deferrals) or are returned as
excess Annual Additions; and
(d) at the election of the Employer, Qualified Non-Elective
Contributions and Qualified Matching Contributions.
For purposes of computing Actual Deferral Percentages, an Employee who would be
a Participant but for the failure to make Elective Deferrals shall be treated as
a Participant on whose behalf no Elective Deferrals are made.
1.2 Adoption Agreement The document attached to this Plan by which an
Employer elects to establish a qualified retirement plan and trust/custodial
account under the terms of this Prototype Plan and Trust/Custodial Account.
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1.3 Aggregate Limit The sum of:
(a) 125 percent of the greater of the ADP of the non-Highly Compensated
Employees for the Plan Year or the ACP of non-Highly Compensated
Employees under the Plan subject to Code Section 401(m) for the Plan
Year beginning with or within the Plan Year of the cash or deferred
arrangement as described in Code Section 401(k) or Code Section
402(h)(1)(B), and
(b) the lesser of 2OO% or two percent plus the lesser of such ADP or
ACP.
Alternatively, the aggregate limit can be determined by substituting "the lesser
of 2OO% or 2 percent plus" for "125% of" in (a) above, and substituting "125%
of" for "the lesser of 2OO% or 2 percent plus" in (b) above.
1.4 Annual Additions The sum of the following amounts credited to a
Participant's account for the Limitation Year:
(a) Employer Contributions,
(b) Employee Contributions (under Article IV),
(c) forfeitures,
(d) amounts allocated after March 31, 1984 to an individual medical
account, as defined in Code Section 415(l)(2), which is part of a
pension or annuity plan maintained by the Employer (these amounts are
treated as Annual Additions to a Defined Contribution Plan though
they arise under a Defined Benefit Plan), and
(e) amounts derived from contributions paid or accrued after 1985, in
taxable years ending after 1985, which are either attributable to
post-retirement medical benefits allocated to the account of a Key
Employee, or to a Welfare Benefit Fund maintained by the Employer,
are also treated as Annual Additions to a Defined Contribution Plan.
For purposes of this paragraph, an Employee is a Key Employee if he
or she meets the requirements of paragraph 1.43 at any time
during the Plan Year or any preceding Plan Year. Welfare Benefit
Fund is defined at paragraph 1.89.
Excess amounts applied in a Limitation Year to reduce Employer contributions
will be considered Annual Additions for such Limitation Year, pursuant to the
provisions of Article X.
1.5 Annuity Starting Date The first day of the first period for which an
amount is paid as an annuity or in any other form.
1.6 Applicable Calendar Year The First Distribution Calendar Year, and in the
event of the recalculation of life expectancy, such succeeding calendar year.
If payments commence in accordance with paragraph 7.4(e) before the
Required Beginning Date, the Applicable Calendar Year is the year such payments
commence. If distribution is in the form of an immediate annuity
purchased after the Participant's death with the Participant's remaining
interest, the Applicable Calendar Year is the year of purchase.
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1.7 Applicable Life Expectancy Used in determining the required minimum
distribution. The life expectancy (or joint and last survivor expectancy)
calculated using the attained age of the Participant (or Designated Beneficiary)
as of the Participant's (or Designated Beneficiary's) birthday in the Applicable
Calendar Year reduced by one for each calendar year which has elapsed since the
date life expectancy was first calculated. If life expectancy is being
recalculated, the Applicable Life Expectancy shall be the life expectancy as so
recalculated. The life expectancy of a non-Spouse Beneficiary may not be
recalculated.
1.8 Average Contribution Percentage (ACP) The average of the Contribution
Percentages for each Highly Compensated Employee and for each non-Highly
Compensated Employee.
1.9 Average Deferral Percentage (ADP) The average of the Actual Deferral
Percentages for each Highly Compensated Employee and for each non-Highly
Compensated Employee.
1.10 Break In Service A 12-consecutive month period during which an Employee
fails to complete more than 500 Hours of Service.
1.11 Code The Internal Revenue Code of 1986, including any amendments.
1.12 Compensation The Employer may select one of the following three safe-
harbor definitions of Compensation in the Adoption Agreement. Compensation
shall only include amounts earned while a Participant if Plan Year is chosen as
the applicable computation period.
(a) Code Section 3401(a) Wages. Compensation is defined as wages within
the meaning of Code Section 3401(a) for the purposes of Federal
income tax withholding at the source but determined without regard to
any rules that limit the remuneration included in wages based on the
nature or location of the employment or the services performed [such
as the exception for agricultural labor in Code Section 3401(a)(2)].
(b) Code Section 6041 and 6051 Wages. Compensation is defined as wages as
defined in Code Section 3401(a) and all other payments of
compensation to an Employee by the Employer (in the course of the
Employer's trade or business) for which the Employer is required to
furnish the employee a written statement under Code Section 6041(d)
and 6051(a)(3). Compensation must be determined without regard to any
rules under Code Section 3401(a) that limit the remuneration included
in wages based on the nature or location of the employment or the
services performed [such as the exception for agricultural labor in
Code Section 3401(a)(2)].
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<PAGE>
(c) Code Section 415 Compensation. For purposes of applying
the limitations of Article X and Top-Heavy Minimums, the definition
of Compensation shall be Code Section 415 Compensation defined
as follows: a Participant's Earned Income, wages, salaries, and fees
for professional services and other amounts received (without regard
to whether or not an amount is paid in cash) for personal services
actually rendered in the course of employment with the Employer
maintaining the Plan to the extent that the amounts are includible
in gross income [including, but not limited to, commissions
paid salesmen, Compensation for services on the basis of a
percentage of profits, commissions on insurance premiums, tips,
bonuses, fringe benefits and reimbursements or other expense
allowances under a nonaccountable plan (as described in Regulation
1.62-2(c)], and excluding the following:
1. Employer contributions to a plan of deferred
compensation which are not includible in the
Employee's gross income for the taxable year in
which contributed, or Employer contributions
under a Simplified Employee Pension Plan or any
distributions from a plan of deferred compensation,
2. Amounts realized from the exercise of a non-
qualified stock option, or when restricted stock (or
property) held by the Employee either becomes
freely transferable or is no longer subject to a
substantial risk of forfeiture,
3. Amounts realized from the sale, exchange or other disposition of
stock acquired under a qualified stock option; and
4. other amounts which received special tax benefits, or
contributions made by the Employer (whether or not under a
salary reduction agreement) towards the purchase of an annuity
contract described in Code Section 403(b) (whether or not
the contributions are actually excludible from the gross income
of the Employee).
For purposes of applying the limitations of Article X and Top-Heavy Minimums,
the definition of Compensation shall be Code Section 415 Compensation described
in this paragraph 1.12(c). Also, for purposes of applying the limitations of
Article X, Compensation for a Limitation Year is the Compensation actually paid
or made available during such Limitation Year. Notwithstanding the preceding
sentence, Compensation for a Participant in a defined contribution plan who is
permanently and totally disabled [as defined in Code Section 22(e)(3)] is the
Compensation such Participant would have received for the Limitation Year if the
Participant had been paid at the rate of Compensation paid immediately before
becoming permanently and totally disabled. Such imputed Compensation for the
disabled Participant may be taken into account only if the participant is not a
Highly Compensated Employee [as defined in Code Section 414(q)] and
contributions made on behalf of such Participant are nonforfeitable when made.
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<PAGE>
If the Employer fails to pick the applicable period in the Adoption Agreement,
the Plan Year shall be used. Unless otherwise specified by the Employer in the
Adoption Agreement, Compensation shall be determined as provided in Code Section
3401(a) (as defined in this paragraph 1.12(a)]. In nonstandardized Adoption
Agreement 002. the Employer may choose to eliminate or exclude categories of
Compensation which do not violate the provisions of Code Sections 401(a)(4),
414(s) the regulations thereunder and Revenue Procedure 89-65.
Beginning with 1989 Plan Years, the annual Compensation of each Participant
which may be taken into account for determining all benefits provided under the
Plan (including benefits under Article XIV) for any year shall not exceed
$200,000, as adjusted under Code Section 415(d). In determining the Compensation
of a Participant for purposes of this limitation, the rules of Code Section
414(q)(6) shall apply, except in applying such rules, the term "family" shall
include only the Spouse of the Participant and any lineal descendants of the
Participant who have not attained age 19 before the end of the Plan year. If as
a result of the application of such rules the adjusted $200,000 limitation is
exceeded, then (except for purposes or determining the portion of Compensation
up to the integration level if this Plan provides for permitted disparity), the
limitation shall be prorated among the affected individuals in proportion to
each such individual's Compensation as determined under this section prior to
the application of this limitation.
If a Plan has a Plan Year that contains fewer than 12 calendar months, then the
annual Compensation limit for that period is an amount equal to the $200,000 as
adjusted for the calendar year in which the Compensation period begins,
multiplied by a fraction the numerator of which is the number of Full months in
the Short Plan Year and the denominator of which is 12. If Compensation for any
prior Plan Year is taken into account in determining an Employee's contributions
or benefits for the current year, the Compensation for such prior year is
subject to the applicable annual Compensation limit in effect for that prior
year. For this purpose, for years beginning before January 1, 1990, the
applicable annual Compensation limit is $200,000.
Compensation shall not include deferred Compensation other than
contributions through a salary reduction agreement to a cash or deferred plan
under Code Section 401(k), a Simplified Employee Pension Plan under Code Section
402(h)(1)(B), a cafeteria plan under Code Section 125 or a tax-deferred annuity
under Code Section 403(b). Unless elected otherwise by the Employer in the
Adoption Agreement, these deferred amounts will be considered as Compensation
for Plan purposes. These deferred amounts are not counted as Compensation for
purposes of Articles X and XIV. When applicable to a Self-Employed Individual,
Compensation shall mean Earned Income.
1.13 Contribution Percentage The ratio (expressed as a percentage and
calculated separately for each Participant) of:
(a) the Participant's Contribution Percentage Amounts [as defined at (c)-
(f)] for the Plan Year, to
(b) the Participant's Compensation for the Plan Year. Compensation will
only include amounts for the period during which the Employee was
eligible to participate.
5
<PAGE>
Contribution Percentage Amounts on behalf of any Participant shall include:
(c) the amount of Employee Voluntary Contributions, Matching
Contributions, and Qualified Matching Contributions (to the extent
not taken into account for purposes of the ADP test) made under the
Plan on behalf of the Participant for the Plan Year,
(d) forfeitures of Excess Aggregate Contributions or Matching
Contributions allocated to the Participant's account which shall be
taken into account in the year in which such forfeiture is allocated,
(e) at the election of the Employer, Qualified Non-Elective
Contributions, and
(f) the Employer also may elect to use Elective Deferrals in the
Contribution Percentage Amounts so long as the ADP test is met before
the Elective Deferrals are used in the ACP test and continues to be
met following the exclusion of those Elective Deferrals that are used
to meet the ACP test.
Contribution Percentage Amounts shall not include Matching Contributions,
whether or not Qualified, that are forfeited either to correct Excess Aggregate
Contributions, or because the contributions to which they relate are Excess
Deferrals, Excess Contributions, or Excess Aggregate Contributions.
1.14 Custodian The individual or institution appointed by the Employer to
have custody of all or part of the Fund.
1.15 Defined Benefit Plan A Plan under which a Participant's benefit is
determined by a formula contained in the Plan and no individual accounts
are maintained for Participants.
1.16 Defined Benefit (Plan) Fraction A fraction, the numerator of which is
the sum of the Participant's Projected Annual Benefits under all the Defined
Benefit Plans (whether or not terminated) maintained by the Employer, and the
denominator of which is the lesser of 125 percent of the dollar limitation
determined for the Limitation Year under Code Sections 415(b) and (d) or 140
percent of the Highest Average Compensation, including any adjustments under
Code Section 415(b).
Notwithstanding the above, if the Participant was a Participant as of the first
day of the first Limitation Year beginning after 1986, in one or more Defined
Benefit Plans maintained by the Employer which were in existence on May 6, 1986,
the denominator of this fraction will not be less than 125 percent of the sum of
the annual benefits under such plans which the Participant had accrued as of the
close of the last Limitation Year beginning before 1987, disregarding any
changes in the terms and conditions of the plan after May 5, 1986. The
preceding sentence applies only if the Defined Benefit Plans individually and in
the aggregate satisfied the requirements of Section 415 for all Limitation Years
beginning before 1987.
1.17 Defined Contribution Dollar Limitation Thirty thousand dollars
($30,000) or if greater, one-fourth of the defined benefit dollar limitation set
forth in Code Section 415(b)(1) as in effect for the Limitation Year.
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1.18 Defined Contribution Plan A Plan under which individual accounts are
maintained for each Participant to which all contributions, forfeitures,
investment income and gains or losses, and expenses are credited or deducted. A
Participant's benefit under such Plan is based solely on the fair market value
of his or her account balance.
1.19 Defined Contribution (Plan) Fraction A Fraction, the numerator or
which is the sum of the Annual Additions to the Participant's account under all
the Defined Contribution Plans (whether or not terminated) maintained by the
Employer for the current and all prior Limitation Years (including the Annual
Additions attributable to the Participant's nondeductible Employee contributions
to all Defined Benefit Plans, whether or not terminated, maintained by the
Employer, and the Annual Additions attributable to all Welfare Benefit Funds, as
defined in paragraph 1.89 and individual medical accounts, as defined in Code
Section 415(l)(2), maintained by the Employer), and the denominator of which is
the sum of the maximum aggregate amounts for the current and all prior
Limitation Years of service with the Employer (regardless of whether a Defined
Contribution Plan was maintained by the Employer). The maximum aggregate amount
in the Limitation Year is the lesser of 125 percent of the dollar limitation
determined under Code Sections 415(b) and (d) in effect under Code Section
415(c)(1)(A) or 35 percent of the Participant's Compensation for such year.
If the Employee was a Participant as of the end of the first day of the first
Limitation Year beginning after 1986, in one or more Defined Contribution Plans
maintained by the Employer which were in existence on May 6, 1986, the numerator
of this fraction will be adjusted if the sum of this fraction and the Defined
Benefit Fraction would otherwise exceed 1.0 under the terms of this Plan. Under
the adjustment, an amount equal to the product of (1) the excess of the sum of
the fractions over 1.0 times (2) the denominator of this fraction will be
permanently subtracted from the numerator of this fraction. The adjustment is
calculated using the fractions as they would be computed as of the end of the
last Limitation Year beginning before 1987, and disregarding any changes in the
terms and conditions of the Plan made after May 6, 1986, but using the Section
415 limitation applicable to the first Limitation Year beginning on or after
January 1, 1987. The Annual Addition for any Limitation Year beginning before
1987, shall not be re-computed to treat all Employee Contributions as Annual
Additions.
1.20 Designated Beneficiary The individual who is designated as the
beneficiary under the Plan in accordance with Code Section 401(a)(9) and the
regulations thereunder.
1.21 Disability An illness or injury of a potentially permanent nature,
expected to last for a continuous period of not less than 12 months, certified
by a physician selected by or satisfactory to the Employer, which prevents the
Employee from engaging in any occupation for wage or profit for which the
Employee is reasonably fitted by training, education or experience.
1.22 Distribution Calendar Year A calendar year for which a minimum
distribution is required.
1.23 Early Retirement Age The age set by the Employer in the Adoption
Agreement (but not less than 55), which is the earliest age at which a
Participant may retire and receive his or her benefits under the Plan.
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1.24 Earned Income Net earnings from self-employment in the trade or business
with respect to which the Plan is established, determined without regard to
items not included in gross income and the deductions allocable to such items
provided that personal services of the individual are a material income-
producing factor. Earned income shall be reduced by contributions made by an
Employer to a qualified plan to the extent deductible under Code Section 404.
For tax years beginning after 1989, net earnings shall be determined taking
into account the deduction for one-half of self-employment taxes allowed to the
Employer under Code Section 164(f) to the extent deductible.
1.25 Effective Date The date on which the Employer's retirement plan or
amendment to such plan becomes effective. For amendments reflecting statutory
and regulatory changes post Tax Reform Act of 1986, the Effective Date will be
the earlier of the date upon which such amendment is first administratively
applied or the first day of the Plan Year following the date of adoption of
such amendment.
1.26 Election Period The period which begins on the first day of the Plan
Year in which the Participant attains age 35 and ends on the date of the
Participant's death. If a Participant separates from service prior to the first
day of the Plan Year in which age 35 is attained, the Election Period shall
begin on the date of separation, with respect to the account balance as of the
date of separation.
1.27 Elective Deferral Employer contributions made to the Plan at the
election of the Participant, in lieu of cash Compensation. Elective Deferrals
shall also include contributions made pursuant to a Salary Savings Agreement
or other deferral mechanism, such as a cash option contribution. With respect
to any taxable year, a Participant's Elective Deferral is the sum of all
Employer contributions made on behalf of such Participant pursuant to an
election to defer under any qualified cash or deferred arrangement as
described in Code Section 401(k), any simplified employee pension cash or
deferred arrangement as described in Code Section 402(h)(1)(B), any eligible
deferred compensation plan under Code Section 457, any plan as described under
Code Section 501(c)(18), and any Employer contributions made on the behalf of a
Participant for the purchase of an annuity contract under Code Section 403(b)
pursuant to a Salary Savings Agreement. Elective Deferrals shall not include
any deferrals properly distributed as Excess Annual Additions.
1.28 Eligible Participant Any Employee who is eligible to make a Voluntary
Contribution, or an Elective Deferral (if the Employer takes such contributions
into account in the calculation of the Contribution Percentage), or to receive
a Matching Contribution (including forfeitures) or a Qualified Matching
Contribution. If a Voluntary Contribution or Elective Deferral is
required as a condition of participation in the Plan, any Employee who would
be a Participant in the Plan if such Employee made such a contribution shall be
treated as an Eligible Participant even though no Voluntary Contributions or
Elective Deferrals are made.
1.29 Employee Any person employed by the Employer (including Self-Employed
Individuals and partners), all Employees of a member of an affiliated service
group [as defined in Code Section 414(m)], Employees of a controlled group of
corporations [as defined in Code Section 414(b)], all Employees of any
incorporated or unincorporated trade or business which is under common control
[as defined in Code Section 414(c)], leased Employees [as defined in Code
Section 414(n)] and any Employee required to be aggregated by Code Section
414(o). All such Employees shall be treated as employed by a single Employer.
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1.30 Employer The Self-Employed Individual, partnership, corporation or other
organization which adopts this Plan including any firm that succeeds the
Employer and adopts this Plan. For purposes of Article X, Limitations on
Allocations, Employer shall mean the Employer that adopts this Plan, and all
members of a controlled group of corporations [as defined in Code Section 414(b)
as modified by Code Section 4l5(h)], all commonly controlled trades or
businesses [as defined in Code Section 414(c) as modified by Code Section
415(h)] or affiliated service groups [as defined in Code Section 414(m)] of
which the adopting Employer is a part, and any other entity required to be
aggregated with the Employer pursuant to regulations under Code Section 414(o).
1.31 Entry Date The date on which an Employee commences participation in the
Plan as determined by the Employer in the Adoption Agreement.
1.32 Excess Aggregate Contributions The excess, with respect to any Plan
Year, of:
(a) The aggregate Contribution Percentage Amounts taken into
account in computing the numerator of the Contribution
Percentage actually made on behalf of Highly Compensated Employees
for such Plan Year, over
(b) The maximum Contribution Percentage Amounts permitted by the
ACP test (determined by reducing contributions made on behalf of
Highly Compensated Employees in order of their Contribution
Percentages beginning with the highest of such percentages).
Such determination shall be made after first determining Excess Elective
Deferrals pursuant to paragraph 1.35 and then determining Excess Contributions
pursuant to paragraph 1.34.
1.33 Excess Amount The excess of the Participant's Annual Additions for the
Limitation Year over the Maximum Permissible Amount.
1.34 Excess Contribution With respect to any Plan Year, the excess of:
(a) The aggregate amount of Employer contributions actually taken into
account in computing the ADP of Highly Compensated Employees for such
Plan Year, over
(b) The maximum amount of such contributions permitted by the ADP test
(determined by reducing contributions made on behalf of Highly
Compensated Employees in order of the ADPs, beginning with the highest
of such percentages).
1.35 Excess Elective Deferrals Those Elective Deferrals that are includible in
a Participant's gross income under Code Section 402(g) to the extent such
Participant's Elective Deferrals for a taxable year exceed the dollar limitation
under such Code Section. Excess Elective Deferrals shall be treated as Annual
Additions under the Plan, unless such amounts are distributed no later than the
first April 15th following the close of the Participant's taxable year.
1.36 Family Member The Employee's Spouse, any lineal descendants and
ascendants and the Spouse of such lineal descendants and ascendants.
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1.37 First Distribution Calendar Year For distributions beginning before the
Participant's death, the First Distribution Calendar Year is the calendar year
immediately preceding the calendar year which contains the Participant's
Required Beginning Date. For distributions beginning after the Participant's
death, the First Distribution Calendar Year is the calendar year in which
distributions are required to begin pursuant to paragraph 7.10.
1.38 Fund All contributions received by the Trustee/Custodian under this Plan
and Trust/Custodial Account, investments thereof and earnings and
appreciation thereon.
1.39 Hardship An immediate and heavy financial need of the Employee where
such Employee lacks other available resources.
1.40 Highest Average Compensation The average Compensation for the three
consecutive Years of Service with the Employer that produces the highest
average. A Year of Service with the Employer is the 12-consecutive month period
defined in the Adoption Agreement.
1.41 Highly Compensated Employee Any Employee who performs service for the
Employer during the determination year and who, during the immediate prior year:
(a) received Compensation from the Employer in excess of $75,000 [as
adjusted pursuant to Code Section 415(d)]; or
(b) received Compensation from the Employer in excess of $50,000 [as
adjusted pursuant to Code Section 415(d)] and was a member of the
Top-Paid Group for such year; or
(c) was an officer of the Employer and received Compensation during such
year that is greater than 50 percent of the dollar limitation in
effect under Code Section 415(b)(1)(A).
Notwithstanding (a), (b) and (c), an Employee who was not Highly Compensated
during the preceding Plan Year shall not be treated as a Highly Compensated
Employee with respect to the current Plan Year unless such Employee is a member
of the 100 Employees paid the greatest Compensation during the year for which
such determination is being made.
(d) Employees who are five percent (5%) Owners at any time during the
immediate prior year or determination year.
Highly Compensated Employee includes Highly Compensated active Employees and
Highly Compensated former Employees.
1.42 Hour Of Service
(a) Each hour for which an Employee is paid, or entitled to payment, for
the performance of duties for the Employer. These hours shall be
credited to the Employee for the computation period in which the
duties are performed; and
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(b) Each hour for which an Employee is paid, or entitled to payment, by
the Employer on account of a period of time during which no duties
are performed (irrespective of whether the employment relationship
has terminated) due to vacation, holiday, illness, incapacity
(including disability), layoff, jury duty, military duty or leave of
absence. No more than 501 Hours of Service shall be credited under
this paragraph for any single continuous period (whether or not such
period occurs in a single computation period). Hours under this
paragraph shall be calculated and credited pursuant to Section
2530.200b-2 of the Department of Labor Regulations which are
incorporated herein by this reference; and
(c) Each hour for which back pay, irrespective of mitigation of damages,
is either awarded or agreed to by the Employer. The same Hours of
Service shall not be credited both under paragraph (a) or paragraph
(b), as the case may be, and under this paragraph (c). These hours
shall be credited to the Employee for the computation period or
periods to which the award or agreement pertains rather than the
computation period in which the award, agreement or payment is made.
(d) Hours of Service shall be credited for employment with the Employer
and with other members of an affiliated service group [as defined in
Code Section 414(m)], a controlled group of corporations [as defined
in Code Section 414(b)], or a group of trades or businesses under
common control [as defined in Code Section 414(c)] of which the
adopting Employer is a member, and any other entity required to be
aggregated with the Employer pursuant to Code Section 414(o) and the
regulations thereunder. Hours of Service shall also be credited for
any individual considered an Employee for purposes of this Plan under
Code Section 414(n) or Code Section 414(o) and the regulations
thereunder.
(e) Solely for purposes of determining whether a Break in Service, as
defined in paragraph 1.10, for participation and vesting purposes has
occurred in a computation period, an individual who is absent from
work for maternity or paternity reasons shall receive credit for the
Hours of Service which would otherwise have been credited to such
individual but for such absence, or in any case in which such hours
cannot be determined, 8 Hours of Service per day of such absence. For
purposes of this paragraph, an absence from work for maternity or
paternity reasons means an absence by reason of the pregnancy of the
individual, by reason of a birth of a child of the individual, by
reason of the placement of a child with the individual in connection
with the adoption of such child by such individual, or for purposes
of caring for such child for a period beginning immediately following
such birth or placement. The Hours of Service credited under this
paragraph shall be credited in the computation period in which the
absence begins if the crediting is necessary to prevent a Break in
Service in that period, or in all other cases, in the following
computation period. No more than 501 hours will be credited under
this paragraph.
(f) Hours of Service shall be determined on the basis of the method
selected in the Adoption Agreement.
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1.43 Key Employee Any Employee or former Employee (and the beneficiaries of such
employee) who at any time during the determination period was an officer of the
Employer if such individual's annual compensation exceeds 50% of the dollar
limitation under Code Section 415(b)(1)(A) (the defined benefit maximum annual
benefit), an owner (or considered an owner under Code Section 318) of one of the
ten largest interests in the employer if such individual's compensation exceeds
100% of the dollar limitation under Code Section 415(c)(1)(A), a 5% owner of the
Employer, or a 1% owner of the Employer who has an annual compensation of more
than $150,000. For purposes of determining who is a Key Employee, annual
compensation shall mean Compensation as defined for Article X, but including
amounts deferred through a salary reduction agreement to a cash or deferred plan
under Code Section 401(k), a Simplified Employee Pension Plan under Code Section
408(k), a cafeteria plan under Code Section 125 or a tax-deferred annuity under
Code Section 403(b). The determination period is the Plan Year containing the
Determination Date and the four preceding Plan Years. The determination of who
is a Key Employee will be made in accordance with Code Section 416(i)(1) and the
regulations thereunder.
1.44 Leased Employee Any person (other than an Employee of the recipient)
who, pursuant to an agreement between the recipient and any other person
("leasing organization"), has performed services for the recipient [or for the
recipient and related persons determined in accordance with Code Section
414(n)(6)] on a substantially full-time basis for a period of at least one year,
and such services are of a type historically performed by Employees in the
business field of the recipient Employer.
1.45 Limitation Year The calendar year or such other 12-consecutive month
period designated by the Employer in the Adoption Agreement for purposes of
determining the maximum Annual Addition to a Participant's account. All
qualified plans maintained by the Employer must use the same Limitation Year.
If the Limitation Year is amended to a different 12-consecutive month period,
the new Limitation Year must begin on a date within the Limitation Year in which
the amendment is made.
1.46 Master Or Prototype Plan A plan, the form of which is the subject of a
favorable opinion letter from the Internal Revenue Service.
1.47 Matching Contribution An Employer contribution made to this or any
other defined contribution plan on behalf of a Participant on account of an
Employee Voluntary Contribution made by such Participant, or on account of a
Participant's Elective Deferral, under a Plan maintained by the Employer.
1.48 Maximum Permissible Amount The maximum Annual Addition that may be
contributed or allocated to a Participant's account under the plan for any
Limitation Year shall not exceed the lesser of:
(a) the Defined Contribution Dollar Limitation, or
(b) 25% of the Participant's Compensation for the Limitation Year.
The compensation limitation referred to in (b) shall not apply to any
contribution for medical benefits [within the meaning of Code Section 401(h) or
Code Section 419A(f)(2)] which is otherwise treated as an Annual Addition under
Code Section 415(l)(1) or 419(d)(2). If a short Limitation Year is created
because of an amendment changing the Limitation Year to a different
12-consecutive month period, the Maximum Permissible Amount will not exceed the
Defined Contribution Dollar Limitation multiplied by the following fraction:
Number of months in the short Limitation Year divided by 12.
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1.49 Net Profit The current and accumulated operating earnings of the Employer
before Federal and State income taxes, excluding nonrecurring or unusual items
of income, and before contributions to this and any other qualified plan of the
Employer. Alternatively, the Employer may fix another definition in the
Adoption Agreement.
1.50 Normal Retirement Age The age, set by the Employer in the Adoption
Agreement, at which a Participant may retire and receive his or her benefits
under the Plan.
1.51 Owner-Employee A sole proprietor, or a partner owning more than 10% of
either the capital or profits interest of the partnership.
1.52 Paired Plans Two or more Plans maintained by the Sponsor designed so that
a single or any combination of Plans adopted by an Employer will meet the
antidiscrimination rules, the contribution and benefit limitations, and the
Top-Heavy provisions of the Code.
1.53 Participant Any Employee who has met the eligibility requirements and is
participating in the Plan.
1.54 Participant's Benefit The account balance as of the last Valuation Date
in the calendar year immediately preceding the Distribution Calendar Year
(valuation calendar year) increased by the amount of any contributions or
forfeitures allocated to the account balance as of the dates in the valuation
calendar year after the Valuation Date and decreased by distributions made in
the valuation calendar year after the Valuation Date. A special exception
exists for the second distribution Calendar Year. For purposes of this
paragraph, if any portion of the minimum distribution for the First Distribution
Calendar Year is made in the second Distribution Calendar Year on or before the
Required Beginning Date, the amount of the minimum distribution made in the
second distribution calendar year shall be treated as if it had been made in the
immediately preceding Distribution Calendar Year.
1.55 Permissive Aggregation Group Used for Top-Heavy testing purposes, it is
the Required Aggregation Group of plans plus any other plan or plans of the
Employer which, when considered as a group with the Required Aggregation Group,
would continue to satisfy the requirements of Code Sections 401(a)(4) and 410.
1.56 Plan The Employer's retirement plan as embodied herein and in the
Adoption Agreement.
1.57 Plan Administrator The Employer.
1.58 Plan Year The 12-consecutive month period designated by the Employer in
the Adoption Agreement.
1.59 Present Value Used for Top-Heavy test and determination purposes, when
determining the Present Value of accrued benefits, with respect to any Defined
Benefit Plan maintained by the Employer, interest and mortality rates shall be
determined in accordance with the provisions of the respective plan. If
applicable, interest and mortality assumptions will be specified in Section 11
of the Adoption Agreement.
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1.60 Projected Annual Benefit Used to test the maximum benefit which may be
obtained from a combination of retirement plans, it is the annual retirement
benefit (adjusted to an actuarial equivalent straight life annuity if such
benefit is expressed in a form other than a straight life annuity or Qualified
Joint and Survivor Annuity) to which the Participant would be entitled under
the terms of a Defined Benefit Plan or plans, assuming:
(a) the Participant will continue employment until Normal Retirement Age
under the plan (or current age, if later), and
(b) the Participant's Compensation for the current Limitation Year and
all other relevant factors used to determine benefits under the plan
will remain constant for all future Limitation Years.
1.61 Qualified Deferred Compensation Plan Any pension, profit-sharing, stock
bonus, or other plan which meets the requirements of Code Section 401 and
includes a trust exempt from tax under Code Section 501(a) or any annuity plan
described in Code Section 403(a).
An Eligible Retirement Plan is an individual retirement account (IRA) as
described in Code Section 408(a), an individual retirement annuity (IRA) as
described in Code Section 408(b), an annuity plan as described in Code Section
403(a), or a qualified trust as described in Code Section 401(a), which accepts
Eligible Rollover Distributions. However in the case of an Eligible Rollover
Distribution to a Surviving Spouse, an Eligible Retirement Plan is an individual
retirement account or individual retirement annuity.
1.62 Qualified Domestic Relations Order A QDRO is a signed Domestic Relations
Order issued by a State Court which creates, recognizes or assigns to an
alternate payee(s) the right to receive all or part of a Participant's Plan
benefit and which meets the requirements of Code Section 414(p). An alternate
payee is a Spouse, former Spouse, child, or other dependent who is treated as a
beneficiary under the Plan as a result of the QDRO.
1.63 Qualified Early Retirement Age For purposes of paragraph 8.9, Qualified
Early Retirement Age is the latest of:
(a) the earliest date, under the Plan, on which the Participant may elect
to receive retirement benefits, or
(b) the first day of the 120th month beginning before the
Participant reaches Normal Retirement Age, or
(c) the date the Participant begins participation.
1.64 Qualified Joint And Survivor Annuity An immediate annuity for the life
of the Participant with a survivor annuity for the life of the Participant's
Spouse which is at least one-half of but not more than the amount of the annuity
payable during the joint lives of the Participant and the Participant's Spouse.
The exact amount of the Survivor Annuity is to be specified by the Employer in
the Adoption Agreement. If not designated by the Employer, the Survivor Annuity
will be 1/2 of the amount paid to the Participant during his or her lifetime.
The Qualified Joint and Survivor Annuity will be the amount of benefit which can
be provided by the Participant's Vested Account Balance.
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1.65 Qualified Matching Contribution Matching Contributions which when made
are subject to the distribution and nonforfeitability requirements under Code
Section 401(k).
1.66 Qualified Non-Elective Contributions Contributions (other than
Matching Contributions or Qualified Matching Contributions) made by the
Employer and allocated to Participants' accounts that the Participants may not
elect to receive in cash until distributed from the Plan; that are
nonforfeitable when made; and that are distributable only in accordance with
the distribution provisions that are applicable to Elective Deferrals and
Qualified Matching Contributions.
1.67 Qualified Voluntary Contribution A tax-deductible voluntary Employee
contribution. These contributions may no longer be made to the Plan.
1.68 Required Aggregation Group Used for Top-Heavy testing purposes, it
consists of:
(a) each qualified plan of the Employer in which at least one Key
Employee participates or participated at any time during the
determination period (regardless of whether the plan has terminated),
and
(b) any other qualified plan of the Employer which enables a plan
described in (a) to meet the requirements of Code Sections 401(a)(4)
or 410.
1.69 Required Beginning Date The date on which a Participant is required to
take his or her first minimum distribution under the Plan. The rules are set
forth at paragraph 7.5.
1.70 Rollover Contribution A contribution made by a Participant of an amount
distributed to such Participant from another Qualified Deferred Compensation
Plan in accordance with Code Sections 402(a)(5), (6), and (7).
An Eligible Rollover Distribution is any distribution of all or any portion of
the balance to the credit of the Participant except that an Eligible Rollover
Distribution does not include:
(a) any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the
life (or life expectancy) of the Participant or the joint lives (or
joint life expectancies) of the Participant and the Participant's
Designated Beneficiary, or for a specified period of ten years or
more;
(b) any distribution to the extent such distribution is required under
Code Section 401(a)(9); and
(c) the portion of any distribution that is not includible in gross
income (determined without regard to the exclusion for net unrealized
appreciation with respect to Employer securities).
A Direct Rollover is a payment by the plan to the Eligible Retirement Plan
specified by the Participant.
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1.71 Salary Savings Agreement An agreement between the Employer and a
participating Employee where the Employee authorizes the Employer to withhold
a specified percentage of his or her Compensation for deposit to the Plan on
behalf of such Employee.
1.72 Self-Employed Individual An individual who has Earned Income for the
taxable year from the trade or business for which the Plan is established
including an individual who would have had Earned Income but for the fact that
the trade or business had no Net Profit for the taxable year.
1.73 Service The period of current or prior employment with the Employer. If
the Employer maintains a plan of a predecessor employer, Service for such
predecessor shall be treated as Service for the Employer.
1.74 Shareholder Employee An Employee or Officer who owns [or is considered
as owning within the meaning of Code Section 318(a)(1)], on any day during the
taxable year of an electing small business corporation (S Corporation), more
than 5% of such corporation's outstanding stock.
1.75 Simplified Employee Pension Plan An individual retirement account
which meets the requirements of Code Section 408(k), and to which the Employer
makes contributions pursuant to a written formula. These plans are considered
for contribution limitation and Top-Heavy testing purposes.
1.76 Sponsor Sterling Trust Company or any successor(s) or assign(s).
1.77 Spouse (Surviving Spouse) The Spouse or Surviving Spouse of the
Participant, provided that a former Spouse will be treated as the Spouse or
Surviving Spouse and a current Spouse will not be treated as the Spouse or
Surviving Spouse to the extent provided under a Qualified Domestic Relations
Order as described in Code Section 414(p).
1.78 Super Top-Heavy Plan A Plan described at paragraph 1.81 under which the
Top-Heavy Ratio [as defined at paragraph 1.82] exceeds 90%.
1.79 Taxable Wage Base For plans with an allocation formula which takes into
account the Employer's contribution under the Federal Insurance Contributions
Act (FICA), the maximum amount of earnings which may be considered wages for
such Plan Year under the Social Security Act [Code Section 3121(a)(1)], or the
amount elected by the Employer in the Adoption Agreement.
1.80 Top-Heavy Determination Date For any Plan Year subsequent to the first
Plan Year, the last day of the preceding Plan Year. For the first Plan Year of
the Plan, the last day of that year.
1.81 Top-Heavy Plan For any Plan Year beginning after 1983, the Employer's
Plan is top-heavy if any of the following conditions exist:
(a) If the Top-Heavy Ratio for the Employer's Plan exceeds 60% and this
Plan is not part of any required Aggregation Group or Permissive
Aggregation Group of Plans.
(b) If the Employer's plan is a part of a Required Aggregation Group of
plans but not part of a Permissive Aggregation Group and the Top-
Heavy Ratio for the group of plans exceeds 60%.
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(c) If the Employer's plan is a part of a Required Aggregation Group and
part of a Permissive Aggregation Group of plans and the Top-Heavy
Ratio for the Permissive Aggregation Group exceeds 60%.
1.82 Top-Heavy Ratio
(a) If the Employer maintains one or more Defined Contribution plans
(including any Simplified Employee Pension Plan) and the Employer has
not maintained any Defined Benefit Plan which during the 5-year
period ending on the Determination Date(s) has or has had accrued
benefits, the Top-Heavy Ratio for this Plan alone, or for the
Required or Permissive Aggregation Group as appropriate, is a
fraction.
(1) the numerator of which is the sum of the account balances of all
Key Employees as of the Determination Date(s) [including any
part of any account balance distributed in the 5-year period
ending on the Determination Date(s)], and
(2) the denominator of which is the sum of all account balances
[including any part of any account balance distributed in the
5-year period ending on the Determination Date(s)], both
computed in accordance with Code Section 416 and the regulations
thereunder.
Both the numerator and denominator of the Top-Heavy Ratio are
increased to reflect any contribution not actually made as of the
Determination Date, but which is required to be taken into account on
that date under Code Section 416 and the regulations thereunder.
(b) If the Employer maintains one or more Defined Contribution Plans
(including any Simplified Employee Pension Plan) and the Employer
maintains or has maintained one or more Defined Benefit Plans which
during the 5-year period ending on the Determination Date(s) has or
has had any accrued benefits, the Top-Heavy Ratio for any Required or
Permissive Aggregation Group as appropriate is a fraction, the
numerator of which is the sum of account balances under the
aggregated Defined Contribution Plan or Plans for all Key Employees,
determined in accordance with (a) above, and the Present Value of
accrued benefits under the aggregated Defined Benefit Plan or Plans
for all Key Employees as of the Determination Date(s), and the
denominator of which is the sum of the account balances under the
aggregated Defined Contribution Plan or Plans for all Participants,
determined in accordance with (a) above, and the Present Value of
accrued benefits under the Defined Benefit Plan or Plans for all
Participants as of the Determination Date(s), all determined in
accordance with Code Section 416 and the regulations thereunder. The
accrued benefits under a Defined Benefit Plan in both the numerator
and denominator of the Top-Heavy Ratio are increased for any
distribution of an accrued benefit made in the 5-year period ending
on the Determination Date.
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(c) For purposes of (a) and (b) above, the value of account balances
and the Present Value of accrued benefits will be determined as of
the most recent Valuation Date that falls within or ends with the 12-
month period ending on the Determination Date, except as provided in
Code Section 416 and the regulations thereunder for the first and
second plan years of a Defined Benefit Plan. The account balances
and accrued benefits of a participant (1) who is not a Key Employee
but who was a Key Employee in a prior year, or (2) who has not been
credited with at least one hour of service with any Employer
maintaining the Plan at any time during the 5-year period ending on
the Determination Date, will be disregarded. The calculation of the
Top-Heavy Ratio, and the extent to which distributions,
rollovers, and transfers are taken into account will be made in
accordance with Code Section 416 and the regulations thereunder.
Qualified Voluntary Employee Contributions will not be taken into
account for purposes of computing the Top-Heavy Ratio. When
aggregating plans the value of account balances and accrued
benefits will be calculated with reference to the Determination Dates
that fall within the same calendar year. The accrued benefit of a
Participant other than a Key Employee shall be determined under (1)
the method, if any, that uniformly applies for accrual purposes under
all Defined Benefit Plans maintained by the Employer, or (2) if there
is no such method, as if such benefit accrued not more rapidly than
the slowest accrual rate permitted under the fractional rule of Code
Section 411(b)(1)(C).
1.83 Top-Paid Group The group consisting of the top 20% of Employees when
ranked on the basis of Compensation paid during such year. For purposes of
determining the number of Employees in the group (but not who is in it), the
following Employees shall be excluded:
(a) Employees who have not completed 6 months of Service.
(b) Employees who normally work less than 17-1/2 hours per week.
(c) Employees who normally do not work more than 6 months during any
year.
(d) Employees who have not attained age 21.
(e) Employees included in a collective bargaining unit, covered by an
agreement between employee representatives and the Employer, where
retirement benefits were the subject of good faith bargaining
and provided that 90% or more of the Employer's Employees are covered
by the agreement.
(f) Employees who are nonresident aliens and who receive no earned income
which constitutes income from sources within the United States.
1.84 Transfer Contribution A non-taxable transfer of a Participant's benefit
directly from a Qualified Deferred Compensation Plan to this Plan.
1.85 Trustee The Sponsor of this Prototype or the individual(s) appointed by
the Employer in the Adoption Agreement.
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1.86 Valuation Date The last day of the Plan Year or such other date as agreed
to by the Employer and the Trustee/Custodian on which Participant accounts
are revalued in accordance with Article V hereof. For Top-Heavy purposes, the
date selected by the Employer as of which the Top-Heavy Ratio is calculated.
1.87 Vested Account Balance The aggregate value of the Participant's Vested
Account Balances derived from Employer and Employee contributions (including
Rollovers), whether vested before or upon death, including the proceeds of
insurance contracts, if any, on the Participant's life. The provisions of
Article VIII shall apply to a Participant who is vested in amounts attributable
to Employer contributions, Employee contributions (or both) at the time of
death or distribution.
1.88 Voluntary Contribution An Employee contribution made to the Plan by or on
behalf of a Participant that is included in the Participant's gross income in
the year in which made and that is maintained under a separate account to which
earnings and losses are allocated.
1.89 Welfare Benefit Fund Any fund that is part of a plan of the Employer, or
has the effect of a plan, through which the Employer provides welfare benefits
to Employees or their beneficiaries. For these purposes, Welfare Benefits means
any benefit other than those with respect to which Code Section 83(h) (relating
to transfers of property in connection with the performance of services). Code
Section 404 (relating to deductions for contributions to an Employee's trust or
annuity and Compensation under a deferred payment plan), Code Section 404A
(relating to certain foreign deferred compensation plans) apply. A "Fund" is
any social club, voluntary employee benefit association, supplemental
unemployment benefit trust or qualified group legal service organization
described in Code Section 501(c)(7), (9), (17) or (20); any trust, corporation,
or other organization not exempt from income tax, or to the extent provided in
regulations, any account held for an Employer by any person.
1.90 Year Of Service A 12-consecutive month period during which an Employee is
credited with not less than 1,000 (or such lesser number as specified by the
Employer in the Adoption Agreement) Hours of Service.
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ARTICLE II
ELIGIBILITY REQUIREMENTS
2.1 Participation Employees who meet the eligibility requirements in the
Adoption Agreement on the Effective Date of the Plan shall become Participants
as of the Effective Date of the Plan. If so elected in the Adoption Agreement,
all Employees employed on the Effective Date of the Plan may participate, even
if they have not satisfied the Plan's specified eligibility requirements.
Other Employees shall become Participants on the Entry Date coinciding with or
immediately following the date on which they meet the eligibility requirements.
The Employee must satisfy the eligibility requirements specified in the
Adoption Agreement and be employed on the Entry Date to become a Participant in
the Plan. In the event an Employee who is not a member of the eligible class
of Employees becomes a member of the eligible class, such Employee shall
participate immediately if such Employee has satisfied the minimum age and
service requirements and would have previously become a Participant had he or
she been in the eligible class. A former Participant shall again become a
Participant upon returning to the employ of the Employer at the next Entry Date
or if earlier, the next Valuation Date. For this purpose, Participant's
Compensation and Service shall be considered from date of rehire.
2.2 Change In Classification Of Employment In the event a Participant becomes
ineligible to participate because he or she is no longer a member of an eligible
class of Employees, such Employee shall participate upon his or her return to an
eligible class of Employees.
2.3 Computation Period To determine Years of Service and Breaks in Service for
purposes of eligibility, the 12-consecutive month period shall commence on the
date on which an Employee first performs an Hour of Service for the Employer and
each anniversary thereof, such that the succeeding 12-consecutive month period
commences with the employee's first anniversary of employment and so on. If,
however, the period so specified is one year or less, the succeeding 12-
consecutive month period shall commence on the first day of the Plan Year
prior to the anniversary of the date they first performed an Hour of Service
regardless of whether the Employee is entitled to be credited with 1,000 (or
such lesser number as specified by the Employer in the Adoption Agreement) Hours
of Service during their first employment year.
2.4 Employment Rights Participation in the Plan shall not confer upon a
Participant any employment rights, nor shall it interfere with the Employer's
right to terminate the employment of any Employee at any time.
2.5 Service With Controlled Groups All Years of Service with other members of
a controlled group of corporations [as defined in Code Section 414(b)], trades
or businesses under common control [as defined in Code Section 414(c)], or
members of an affiliated service group [as defined in Code Section 414(m)] shall
be credited for purposes of determining an Employee's eligibility to
participate.
2.6 Owner-Employees If this Plan provides contributions or benefits for one
or more Owner-Employees who control both the business for which this Plan is
established and one or more other trades or businesses, this Plan and the Plan
established for other trades or businesses must, when looked at as a single
Plan, satisfy Code Sections 401(a) and (d) for the Employees of this and all
other trades or businesses.
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If the Plan provides contributions or benefits for one or more Owner-Employees
who control one or more other trades or businesses, the Employees of the other
trades or businesses must be included in a Plan which satisfies Code Sections
401(a) and (d) and which provides contributions and benefits not less favorable
than provided for Owner-Employees under this Plan.
If an individual is covered as an Owner-Employee under the plans of two or more
trades or businesses which are not controlled, and the individual controls a
trade or business, then the contributions or benefits of the Employees under the
plan of the trades or businesses which are controlled must be as favorable as
those provided for him or her under the most favorable plan of the trade or
business which is not controlled.
For purposes of the preceding sentences, an Owner-Employee, or two or more
Owner-Employees, will be considered to control a trade or business if the
Owner-Employee, or two or more Owner-Employees together:
(a) own the entire interest in an unincorporated trade or business, or
(b) in the case of a partnership, own more than 50% of either the capital
interest or the profits interest in the partnership.
For purposes of the preceding sentence, an Owner-Employee, or two or more Owner-
Employees shall be treated as owning any interest in a partnership which is
owned, directly or indirectly, by a partnership which such Owner-Employee, or
such two or more Owner-Employees, are considered to control within the meaning
of the preceding sentence.
2.7 Leased Employees Any leased Employee shall be treated as an Employee of
the recipient Employer; however, contributions or benefits provided by the
leasing organization which are attributable to services performed for
the recipient Employer shall be treated as provided by the recipient Employer.
A leased Employee shall not be considered an Employee of the recipient if such
Employee is covered by a money purchase pension plan providing:
(a) a non-integrated Employer contribution rate of at least 10% of
Compensation, [as defined in Code Section 415(c)(3) but including
amounts contributed by the Employer pursuant to a salary reduction
agreement, which are excludable from the Employee's gross income
under a cafeteria plan covered by Code Section 125, a cash or
deferred profit-sharing plan under Section 401(k) of the Code, a
Simplified Employee Pension Plan under Code Section 402(h)(1)(B) and
a tax-sheltered annuity under Code Section 403(b)],
(b) immediate participation, and
(c) full and immediate vesting.
This exclusion is only available if Leased Employees do not constitute more than
twenty percent (20%) of the recipient's non-highly compensated work force.
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2.8 Thrift Plans If the Employer makes an election in the Adoption Agreement
to require Voluntary Contributions to participate in this Plan, the Employer
shall notify each eligible Employee in writing of his or her eligibility for
participation at least 30 days prior to the appropriate Entry Date. The
Employee shall indicate his or her intention to join the Plan by authorizing the
Employer to withhold a percentage of his or her Compensation as provided in the
Plan. Such authorization shall be returned to the Employer at least 10 days
prior to the Employee's Entry Date. The Employee may decline participation by
so indicating on the enrollment form or by failure to return the enrollment form
to the Employer prior to the Employee's Entry Date. If the Employee declines to
participate, such Employee shall be given the opportunity to join the Plan on
the next Entry Date. The taking of a Hardship Withdrawal under the provisions
of paragraph 6.9 will impact the Participant's ability to make these
contributions.
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ARTICLE III
EMPLOYER CONTRIBUTIONS
3.1 Amount The Employer intends to make periodic contributions to the Plan in
accordance with the formula or formulas selected in the Adoption Agreement.
However, the Employer's contribution for any Plan Year shall be subject to the
limitations on allocations contained in Article X.
3.2 Expenses And Fees The Employer shall also be authorized to reimburse the
Fund for all expenses and fees incurred in the administration of the Plan or
Trust/Custodial Account and paid out of the assets of the Fund. Such expenses
shall include, but shall not be limited to, fees for professional services,
printing and postage. Brokerage commissions may not be reimbursed.
3.3 Responsibility For Contributions Neither the Trustee/Custodian nor the
Sponsor shall be required to determine if the Employer has made a contribution
or if the amount contributed is in accordance with the Adoption Agreement or the
Code. The Employer shall have sole responsibility in this regard. The
Trustee/Custodian shall be accountable solely for contributions actually
received by it, within the limits of Article XI.
3.4 Return Of Contributions Contributions made to the Fund by the Employer
shall be irrevocable except as provided below:
(a) Any contribution forwarded to the Trustee/Custodian because of a
mistake of fact, provided that the contribution is returned to the
Employer within one year of the contribution.
(b) In the event that the Commissioner of Internal Revenue determines
that the Plan is not initially qualified under the Internal Revenue
Code, any contribution made incident to that initial qualification by
the Employer must be returned to the Employer within one year after
the date the initial qualification is denied, but only if the
application for the qualification is made by the time prescribed by
law for filing the Employer's return for the taxable year in which
the Plan is adopted, or such later date as the Secretary of the
Treasury may prescribe.
(c) Contributions forwarded to the Trustee/Custodian are presumed to be
deductible and are conditioned on their deductibility.
Contributions which are determined to not be deductible will be
returned to the Employer.
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ARTICLE IV
EMPLOYEE CONTRIBUTIONS
4.1 Voluntary Contributions An Employee may make Voluntary Contribution to
the Plan established hereunder if so authorized by the Employer in a uniform
and nondiscriminatory manner. Such contributions are subject to the
limitations on Annual Additions and are subject to antidiscrimination testing.
4.2 Qualified Voluntary Contributions A Participant may no longer make
Qualified Voluntary Contributions to the Plan. Amounts already contributed may
remain in the Trust Fund/Custodial Account until distributed to the Participant.
Such amounts will be maintained in a separate account which will be
nonforfeitable at all times. The account will share in the gains and losses of
the Trust in the same manner as described at paragraph 5.4 of the Plan. No part
of the Qualified Voluntary Contribution account will be used to purchase life
insurance. Subject to Article VIII, Joint and Survivor Annuity Requirements (if
applicable), the Participant may withdraw any part of the Qualified Voluntary
Contribution account by making a written application to the Plan Administrator.
4.3 Rollover Contribution Unless provided otherwise in the Adoption Agreement,
a Participant may make a Rollover Contribution to any Defined Contribution Plan
established hereunder of all or any part of an amount distributed or
distributable to him or her from a Qualified Deferred Compensation Plan
provided:
(a) the amount distributed to the Participant is deposited to the Plan no
later than the sixtieth day after such distribution was received by
the Participant,
(b) the amount distributed is not one of a series of substantially equal
periodic payments made for the life (or life expectancy) of the
Participant or the joint lives (or joint life expectancies) of the
Participant and the Participant's Designated Beneficiary, or for a
specified period of ten years or more;
(c) the amount distributed is not required under Code Section 401(a)(9);
(d) if the amount distributed included property such property is rolled
over, or if sold the proceeds of such property may be rolled over,
(e) the amount distributed is not includible in gross income
(determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities).
In addition, if the Adoption Agreement allows Rollover Contributions, the Plan
will also accept any Eligible Rollover Distribution (as defined at paragraph
1.70) directly to the Plan.
Rollover Contributions, which relate to distributions prior to January 1, 1993,
must be made in accordance with paragraphs (a) through (e) and additionally
meet the requirements of paragraph (f):
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(f) The distribution from the Qualified Deferred Compensation Plan
constituted the Participant's entire interest in such Plan and was
distributed within one taxable year to the Participant:
(1) on account of separation from Service, a Plan termination, or in
the case of a profit-sharing or stock bonus plan, a complete
discontinuance of contributions under such plan within the
meaning of Code Section 402(a)(6)(A), or
(2) in one or more distributions which constitute a qualified lump
sum distribution within the meaning
of Code Section 402(e)(4)(A), determined without
reference to subparagraphs (B) and (H).
Such Rollover Contribution may also be made through an individual retirement
account qualified under Code Section 408 where the IRA was used as a conduit
from the Qualified Deferred Compensation Plan, the Rollover Contribution is made
in accordance with the rules provided under paragraphs (a) through (e) and the
Rollover Contribution does not include any regular IRA contributions, or
earnings thereon, which the Participant may have made to the IRA. Rollover
Contributions, which relate to distributions prior to January 1, 1993, may be
made through an IRA in accordance with paragraphs (a) through (f) and additional
requirements as provided in the previous sentence. The Trustee/Custodian shall
not be held responsible for determining the tax-free status of any Rollover
Contribution made under this Plan.
4.4 Transfer Contribution Unless provided otherwise in the Adoption
Agreement a Participant may, subject to the provisions of paragraph 4.5, also
arrange for the direct transfer of his or her benefit from a Qualified Deferred
Compensation Plan to this Plan. For accounting and record keeping purposes,
Transfer Contributions shall be treated in the same manner as Rollover
Contributions.
In the event the Employer accepts a Transfer Contribution from a Plan in which
the Employee was directing the investments of his or her account, the Employer
may continue to permit the Employee to direct his or her investments in
accordance with paragraph 13.7 with respect only to such Transfer Contribution.
Notwithstanding the above, the Employer may refuse to accept such Transfer
Contributions.
4.5 Employer Approval Of Transfer Contributions The Employer maintaining a
Safe-Harbor Profit-Sharing Plan in accordance with the provisions of paragraph
8.7, acting in a nondiscriminatory manner, may in its sole discretion refuse to
allow Transfer Contributions to its profit-sharing plan, if such
contributions are directly or indirectly being transferred from a defined
benefit plan, a money purchase pension plan (including a target benefit plan), a
stock bonus plan, or another profit-sharing plan which would otherwise provide
for a life annuity form of payment to the Participant.
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4.6 Elective Deferrals A Participant may enter into a Salary Savings
Agreement with the Employer authorizing the Employer to withhold a portion of
such Participant's Compensation not to exceed $7,000 per calendar year as
adjusted under Code Section 415(d) or, if lesser, the percentage of Compensation
specified in the Adoption Agreement and to deposit such amount to the Plan. No
Participant shall be permitted to have Elective Deferrals made under this Plan
or any other qualified plan maintained by the Employer, during any taxable year,
in excess of the dollar limitation contained in Code Section 402(g) in effect at
the beginning of such taxable year. Thus, the $7,000 limit may be reduced if a
Participant contributes pre-tax contributions to qualified plans of this or
other Employers. Any such contribution shall be credited to the Employee's
Salary Savings Account. Unless otherwise specified in the Adoption Agreement,
a Participant may amend his or her Salary Savings Agreement to increase,
decrease or terminate the percentage upon 30 days written notice to the
Employer. If a Participant terminates his or her agreement, such Participant
shall not be permitted to put a new Salary Savings Agreement into effect until
the first pay period in the next Plan Year, unless otherwise stated in the
Adoption Agreement. The Employer may also amend or terminate said agreement on
written notice to the Participant. If a Participant has not authorized the
Employer to withhold at the maximum rate and desires to increase the total
withheld for a Plan Year, such Participant may authorize the Employer upon 30
days notice to withhold a supplemental amount up to 100% of his or her
Compensation for one or more pay periods. In no event may the sum of the
amounts withheld under the Salary Savings Agreement plus the supplemental
withholding exceed 25% of a Participant's Compensation for a Plan Year. The
Employer may also recharacterize as after-tax Voluntary Contributions all or any
portion of amounts previously withheld under any Salary Savings Agreement within
the Plan Year as provided for at paragraph 10.9. This may be done to insure
that the Plan will meet one of the antidiscrimination tests under Code Section
401(k). Elective Deferrals shall be deposited in the Trust within 30 days after
being withheld from the Participant's pay.
4.7 Required Voluntary Contributions If the Employer makes a thrift election
in the Adoption Agreement, each eligible Participant shall be required to make
Voluntary Contributions to the Plan for credit to his or her account as provided
in the Adoption Agreement. Such Voluntary Contributions shall be withheld from
the Employee's Compensation and shall be transmitted by the Employer to the
Trustee/Custodian as agreed between the Employer and Trustee/Custodian. A
Participant may discontinue participation or change his or her
Voluntary Contribution percentage by so advising the Employer at least 10 days
prior to the date on which such discontinuance or change is to be effective.
If a Participant discontinues his or her Voluntary Contributions, such
Participant may not again authorize Voluntary Contributions for a period of one
year from the date of discontinuance. A Participant may voluntarily change
his or her Voluntary Contribution percentage once during any Plan Year and may
also agree to have a reduction in his or her contribution, if required to
satisfy the requirements of the ACP test.
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4.8 Direct Rollover Of Benefits Notwithstanding any provision of the Plan to
the contrary that would otherwise limit a Participant's ejection under this
paragraph, for distributions made on or after January 1, 1993, a Participant may
elect, at the time and in the manner prescribed by the Plan Administrator, to
have any portion of an Eligible Rollover Distribution paid directly to an
Eligible Retirement Plan specified by the Participant in a Direct Rollover. Any
portion of a distribution which is not paid directly to an Eligible Retirement
Plan shall be distributed to the Participant. For purposes of this paragraph, a
Surviving Spouse or a Spouse or former Spouse who is an alternate payee under a
Qualified Domestic Relations Order as defined in Code Section 414(p), will be
permitted to elect to have any Eligible Rollover Distribution paid directly to
an individual retirement account (IRA) or an individual retirement annuity
(IRA).
The plan provisions otherwise applicable to distributions continue to apply to
Rollover and Transfer Contributions.
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ARTICLE V
PARTICIPANT ACCOUNTS
5.1 Separate Accounts The Employer shall establish a separate bookkeeping
account for each Participant showing the total value of his or her interest in
the Fund. Each Participant's account shall be separated for bookkeeping
purposes into the following sub-accounts:
(a) Employer contributions.
(1) Matching Contributions.
(2) Qualified Matching Contributions.
(3) Qualified Non-Elective Contributions.
(4) Discretionary Contributions.
(5) Elective Deferrals.
(b) Voluntary Contributions (and additional amounts including required
contributions and, if applicable either repayments of loans
previously defaulted on and treated as "deemed distributions" on
which a tax report has been issued, and amounts paid out upon a
separation from service which have been included in income and which
are repaid after being re-hired by the Employer).
(c) Qualified Voluntary Contributions (if the Plan previously
accepted these).
(d) Rollover Contributions and Transfer Contributions.
5.2 Adjustments To Participant Accounts As of each Valuation Date of the
Plan, the Employer shall add to each account:
(a) the Participant's share of the Employer's contribution and
forfeitures as determined in the Adoption Agreement,
(b) any Elective Deferrals, Voluntary, Rollover or Transfer
Contributions made by the Participant,
(c) any repayment of amounts previously paid out to a Participant upon a
separation from Service and repaid by the Participant since the last
Valuation Date, and
(d) the Participant's proportionate share of any investment earnings and
increase in the fair market value of the Fund since the last
Valuation Date, as determined at paragraph 5.4.
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The Employer shall deduct from each account:
(e) any withdrawals or payments made from the Participant's account
since the last Valuation Date, and
(f) the Participant's proportionate share of any decrease in the fair
market value of the Fund since the last Valuation Date as determined
at paragraph 5.4.
5.3 Allocating Employer Contributions The Employer's contribution shall be
allocated to Participants in accordance with the allocation formula selected by
the Employer in the Adoption Agreement, and the minimum contribution and
allocation requirements for Top-Heavy Plans. Beginning with the 1990
Plan Year and thereafter, for plans on Standardized Adoption Agreement 001,
Participants who are credited with more than 500 Hours of Service or are
employed on the last day of the Plan Year must receive a full allocation
of Employer contributions. In Nonstandardized Adoption Agreement 002,
Employer contributions shall be allocated to the accounts of Participants
employed by the Employer on the last day of the Plan Year unless indicated
otherwise in the Adoption Agreement. In the case of a non-Top-Heavy,
Nonstandardized Plan, Participants must also have completed a Year of Service
unless otherwise specified in the Adoption Agreement. For Nonstandardized
Adoption Agreement 002, the Employer may only apply the last day of the Plan
Year and Year of Service requirements if the Plan satisfies the requirements of
Code Sections 401(a)(26) and 410(b) and the regulations thereunder including the
exception for 401(k) plans. If, when applying the last day and Year of Service
requirements, the Plan fails to satisfy the aforementioned requirements,
additional Participants will be eligible to receive an allocation of Employer
Contributions until the requirements are satisfied. Participants who are
credited with a Year of Service, but not employed at Plan Year end, are the
first category of additional Participants eligible to receive an allocation. If
the requirements are still not satisfied, Participants credited with more than
500 Hours of Service and employed at Plan Year end are the next category of
Participants eligible to receive an allocation. Finally, if necessary to
satisfy the said requirements, any Participant credited with more than 500 Hours
of Service will be eligible for an allocation of Employer Contributions. The
Service requirement is not applicable with respect to any Plan Year during which
the Employer's Plan is Top-Heavy.
5.4 Allocating Investment Earnings And Losses A Participant's share of
investment earnings and any increase or decrease in the fair market value of the
Fund shall be based on the proportionate value of all active accounts (other
than accounts with segregated investments) as of the last Valuation Date less
withdrawals since the last Valuation Date. All contributions will be credited
with an allocation of the actual investment earnings and gains and losses from
the actual date of deposit of each such contribution until the end of the
period. Accounts with segregated investments shall receive only the income
or loss on such segregated investments.
5.5 Participant Statements Upon completing the allocations described above
for the Valuation Date coinciding with the end of the Plan Year, the Employer
shall prepare a statement for each Participant showing the additions to and
subtractions from his or her account since the last such statement and the fair
market value of his or her account as of the current Valuation Date. Employers
so choosing may prepare Participant statements for each Valuation Date.
(The next page is page 31.)
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ARTICLE VI
RETIREMENT BENEFITS AND DISTRIBUTIONS
6.1 Normal Retirement Benefits A Participant shall be entitled to receive
the balance held in his or her account from Employer contributions upon
attaining Normal Retirement Age or at such earlier dates as the provisions of
this Article VI may allow. If the Participant elects to continue working past
his or her Normal Retirement Age, he or she will continue as an active Plan
Participant and no distribution shall be made to such Participant until his or
her actual retirement date unless the employer elects otherwise in the Adoption
Agreement, or a minimum distribution is required by law. Settlement shall be
made in the normal form, or if elected, in one of the optional forms of payment
provided below.
6.2 Early Retirement Benefits If the Employer so provides in the Adoption
Agreement, an Early Retirement Benefit will be available to individuals who meet
the age and Service requirements. An individual who meets the Early Retirement
Age requirements and separates from Service, will become fully vested,
regardless of any vesting schedule which otherwise might apply. If a
Participant separates from Service before satisfying the age requirements, but
after having satisfied the Service requirement, the Participant will be entitled
to elect an Early Retirement benefit upon satisfaction of the age requirement.
6.3 Benefits On Termination Of Employment
(a) If a Participant terminates employment prior to Normal Retirement
Age, such Participant shall be entitled to receive the vested balance
held in his or her account payable at Normal Retirement Age in the
normal form, or if elected, in one of the optional forms of payment
provided hereunder. If applicable, the Early Retirement Benefit
provisions may be elected. Notwithstanding the preceding sentence, a
former Participant may, if allowed in the Adoption Agreement, make
application to the Employer requesting early payment of any deferred
vested and nonforfeitable benefit due.
(b) If a Participant terminates employment, and the value of that
Participant's Vested Account Balance derived from Employer and
Employee contributions is not greater than $3,500, the Participant
may receive a lump sum distribution of the value of the entire vested
portion of such account balance and the non-vested portion will be
treated as a forfeiture. The Employer shall continue to follow their
consistent policy, as may be established, regarding immediate cash-
outs of Vested Account Balances of $3,500 or less. For purposes of
this Article, if the value of a Participant's Vested Account Balance
is zero, the Participant shall be deemed to have received a
distribution of such Vested Account Balance immediately following
termination. Likewise, if the Participant is reemployed prior to
incurring 5 consecutive 1-year Breaks in Service they will be deemed
to have immediately repaid such distribution. For Plan Years
beginning prior to 1989, a Participant's Vested Account Balance shall
not include Qualified
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Voluntary Contributions. Notwithstanding the above, if the Employer
maintains or has maintained a policy of not distributing any amounts
until the Participant's Normal Retirement Age, the Employer can
continue to uniformly apply such policy.
(c) If a Participant terminates employment with a Vested Account Balance
derived from Employer and Employee contributions in excess of $3,500,
and elects (with his or her Spouse's consent, if required) to receive
100% of the value of his or her Vested Account Balance in a lump sum,
the non-vested portion will be treated as a forfeiture. The
Participant (and his or her Spouse, if required) must consent to any
distribution, when the Vested Account Balance described above exceeds
$3,500 or if at the time of any prior distribution it exceeded
$3,500. For purposes of this paragraph, for Plan Years beginning
prior to 1989, a Participant's Vested Account Balance shall not
include Qualified Voluntary Contributions.
(d) Distribution of less than 100% of the Participant's Vested Account
Balance shall only be permitted if the Participant is fully vested
upon termination of employment.
(e) If a Participant who is not 100% vested receives or is deemed to
receive a distribution pursuant to this paragraph and resumes
employment covered under this Plan, the Participant shall have the
right to repay to the Plan the full amount of the distribution
attributable to Employer contributions on or before the earlier of
the date that the Participant incurs 5 consecutive 1-year Breaks in
Service following the date of distribution or five years after the
first date on which the Participant is subsequently reemployed. In
such event, the Participant's account shall be restored to the value
thereof at the time the distribution was made and may further be
increased by the Plan's income and investment gains and/or losses on
the undistributed amount from the date of distribution to the date of
repayment.
(f) A Participant shall also have the option, to postpone payment of his
or her Plan benefits until the first day of April following the
calendar year in which he or she attains age 70-1/2. Any balance of
a Participant's account resulting from his or her Employee
contributions not previously withdrawn, if any, may be withdrawn by
the Participant immediately following separation from Service.
(g) If a Participant ceases to be an active Employee as a result of a
Disability as defined at paragraph 1.21, such Participant shall be
able to make an application for a disability retirement benefit
payment. The Participant's account balance will be deemed
"immediately distributable" as set forth in paragraph 6.4, and will
be fully vested pursuant to paragraph 9.2.
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<PAGE>
6.4 Restrictions On Immediate Distributions
(a) An account balance is immediately distributable if any part of the
account balance could be distributed to the Participant (or
Surviving Spouse) before the Participant attains (or would have
attained if not deceased) the later of the Normal Retirement Age
or age 62.
(b) If the value of a Participant's Vested Account Balance derived from
Employer and Employee Contributions exceeds (or at the time of any
prior distribution exceeded) $3,500, and the account balance is
immediately distributable, the Participant and his or her Spouse (or
where either the Participant or the Spouse has died, the survivor)
must consent to any distribution of such account balance. The consent
of the Participant and the Spouse shall be obtained in writing within
the 90-day period ending on the annuity starting date, which is the
first day of the first period for which an amount is paid as an
annuity or any other form. The Plan Administrator shall notify the
Participant and the Participant's Spouse of the right to defer any
distribution until the Participant's account balance is no longer
immediately distributable. Such notification shall include a general
description of the material features, and an explanation of the
relative values of, the optional forms of benefit available under the
plan in a manner that would satisfy the notice requirements of Code
Section 417(a)(3), and shall be provided no less than 30 days and no
more than 90 days prior to the annuity starting date.
(c) Notwithstanding the foregoing, only the Participant need consent to
the commencement of a distribution in the form of a qualified Joint
and Survivor Annuity while the account balance is immediately
distributable. Furthermore, if payment in the form of a Qualified
Joint and Survivor Annuity is not required with respect to the
Participant pursuant to paragraph 8.7 of the Plan, only the
Participant need consent to the distribution of an account balance
that is immediately distributable. Neither the consent of the
Participant nor the Participant's Spouse shall be required to the
extent that a distribution is required to satisfy Code Section
401(a)(9) or Code Section 415. In addition, upon termination of this
Plan if the Plan does not offer an annuity option (purchased from a
commercial provider), the Participant's account balance may, without
the Participant's consent, be distributed to the Participant or
transferred to another Defined Contribution Plan [other than an
employee stock ownership plan as defined in Code Section 4975(e)(7)]
within the same controlled group.
(d) For purposes of determining the applicability of the foregoing
consent requirements to distributions made before the first day of
the first Plan Year beginning after 1988, the Participant's Vested
Account Balance shall not include amounts attributable to Qualified
Voluntary Contributions.
6.5 Normal Form Of Payment The normal form of payment for a profit-sharing
plan satisfying the requirements of paragraph 8.7 hereof shall be a lump sum
with no option for annuity payments. For all other plans, the normal form of
payment hereunder shall be a Qualified Joint and Survivor Annuity as provided
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under Article VIII. A Participant whose Vested Account Balance derived from
Employer and Employee contributions exceeds $3,500, or if at the time of any
prior distribution it exceeded $3,500, shall (with the consent of his or her
Spouse) have the right to receive his or her benefit in a lump sum or in
monthly, quarterly, semi-annual or annual payments from the Fund over any period
not extending beyond the life expectancy of the Participant and his or her
Beneficiary. For purposes of this paragraph, for Plan Years prior to 1989, a
Participant's Vested Account Balance shall not include Qualified Voluntary
Contributions. The normal form of payment shall be automatic, unless the
Participant files a written request with the Employer prior to the date on which
the benefit is automatically payable, electing a lump sum or installment payment
option. No amendment to the Plan may eliminate one of the optional distribution
forms listed above.
6.6 Commencement Of Benefits
(a) Unless the Participant elects otherwise, distribution of benefits
will begin no later than the 60th day after the close of the Plan
Year in which the latest of the following events occurs:
(1) the Participant attains age 65 (or normal retirement age if
earlier),
(2) the 10th anniversary of the year in which the Participant
commenced participation in the Plan, or
(3) the Participant terminates Service with the Employer.
(b) Notwithstanding the foregoing, the failure of a Participant and
Spouse (if necessary) to consent to a distribution while a benefit is
immediately distributable, within the meaning of paragraph 6.4
here of, shall be deemed an election to defer commencement of payment
of any benefit sufficient to satisfy this paragraph.
6.7 Claims Procedures Upon retirement, death, or other severance of
employment, the Participant or his or her representative may make application to
the Employer requesting payment of benefits due and the manner of payment. If
no application for benefits is made, the Employer shall automatically pay any
vested benefit due hereunder in the normal form at the time prescribed at
paragraph 6.4. If an application for benefits is made, the Employer shall
accept, reject, or modify such request and shall notify the Participant in
writing setting forth the response of the Employer and in the case of a denial
or modification the Employer shall:
(a) state the specific reason or reasons for the denial,
(b) provide specific reference to pertinent Plan provisions on which the
denial is based,
(c) provide a description of any additional material or information
necessary for the Participant or his representative to perfect the
claim and an explanation of why such material or information is
necessary, and
(d) explain the Plan's claim review procedure as contained in this Plan.
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<PAGE>
In the event the request is rejected or modified, the Participant or his or her
representative may within 60 days following receipt by the Participant or
representative of such rejection or modification, submit a written request for
review by the Employer of its initial decision. Within 60 days following such
request for review, the Employer shall render its final decision in writing to
the Participant or representative stating specific reasons for such decision.
If the Participant or representative is not satisfied with the Employer's final
decision, the Participant or representative can institute an action in a
federal court of competent jurisdiction: for this purpose, process would be
served on the Employer.
6.8 In-Service Withdrawals An Employee may withdraw all or any part of the fair
market value of his or her Mandatory Contributions, Voluntary Contributions,
Qualified Voluntary Contributions or Rollover Contributions, upon written
request to the Employer. Transfer Contributions, which originate from a Plan
meeting the safe-harbor provisions of paragraph 8.7, may also be withdrawn by an
Employee upon written request to the Employer. Transfer Contributions not
meeting the safe-harbor provisions may only be withdrawn upon retirement, death,
Disability, termination or termination of the Plan, and will be subject to
Spousal consent requirements contained in Code Sections 411(a)(11) and 417. No
such withdrawals are permitted from a money purchase plan until the participant
reaches Normal Retirement Age. Such request shall include the Participant's
address, social security number, birthdate, and amount of the withdrawal. If at
the time a distribution of Qualified Voluntary Contributions is received the
Participant has not attained age 59-1/2 and is not disabled, as defined at Code
Section 22(e)(3), the Participant will be subject to a federal income tax
penalty, unless the distribution is rolled over to a qualified plan or
individual retirement plan within 60 days of the date of distribution. A
Participant may withdraw all or any part of the fair market value of his or her
pre-1987 Voluntary Contributions with or without withdrawing the earnings
attributable thereto. Post-1986 Voluntary Contributions may only be withdrawn
along with a portion of the earnings thereon. The amount of the earnings to be
withdrawn is determined by using the formula: DA[1-(V divided by V + E)], where
DA is the distribution amount, V is the amount of Voluntary Contributions and V
+ E is the amount of Voluntary Contributions plus the earnings attributable
thereto. A Participant withdrawing his or her other contributions prior to
attaining age 59-1/2, will be subject to a federal tax penalty to the extent
that the withdrawn amounts are includible in income. Unless the Employer
provides otherwise in the Adoption Agreement, any Participant in a profit-
sharing plan who is 100% fully vested in his or her Employer contributions may
withdraw all or any part of the fair market value of any of such contributions
that have been in the account at least two years, plus the investment earnings
thereon, after attaining age 59-1/2 without separation from Service. Such
distributions shall not be eligible for redeposit to the Fund. A withdrawal
under this paragraph shall not prohibit such Participant from sharing in any
future Employer Contribution he or she would otherwise be eligible to share in.
A request to withdraw amounts pursuant to this paragraph must if applicable, be
consented to by the Participant's Spouse. The consent shall comply with the
requirements of paragraph 6.4 relating to immediate distributions.
Elective Deferrals, Qualified Non-elective Contributions, and Qualified Matching
Contributions, and income allocable to each are not distributable to a
Participant or his or her Beneficiary or Beneficiaries, in accordance with such
Participant's or Beneficiary's or Beneficiaries' election, earlier than upon
separation from Service, death, or Disability. Such amounts may also be
distributed upon:
(a) Termination of the Plan without the establishment of another Defined
Contribution Plan.
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(b) The disposition by a corporation to an unrelated corporation of
substantially all of the assets [within the meaning of Code Section
409(d)(2)] used in a trade or business of such corporation if such
corporation continues to maintain this Plan after the disposition,
but only with respect to Employees who continue employment with the
corporation acquiring such assets.
(c) The disposition by a corporation to an unrelated entity of such
corporation's interest in a subsidiary [within the meaning of Code
Section 409(d)(3)] if such corporation continues to maintain this
plan, but only with respect to Employees who continue employment with
such subsidiary.
(d) The attainment of age 59-1/2.
(e) The Hardship of the Participant as described in paragraph 6.9.
All distributions that may be made pursuant to one or more of the foregoing
distributable events are subject to the Spousal and Participant consent
requirements, if applicable, contained in Code Sections 401(a)(1l) and 417.
6.9 Hardship Withdrawal If permitted by the Trustee/Custodian and the
Employer in the Adoption Agreement, a Participant may request a Hardship
withdrawal prior to attaining age 59-1/2. If the Participant has not attained
age 59-1/2, the Participant may be subject to a federal income tax penalty.
Such request shall be in writing to the Employer who shall have sole authority
to authorize a Hardship withdrawal, pursuant to the rules below. Hardship
withdrawals may include Elective Deferrals regardless of when contributed and
any earnings accrued and credited thereon as of the last day of the Plan Year
ending before July 1, 1989 and Employer related contributions, including but not
limited to Employer Matching Contributions, plus the investment earnings thereon
to the extent vested. Qualified Matching Contributions, Qualified Non-Elective
Contributions and Elective Deferrals reclassified as Voluntary Contributions
plus the investment earnings thereon are only available for Hardship withdrawal
prior to age 59-1/2 to the extent that they were credited to the Participant's
Account as of the last day of the Plan Year ending prior to July 1, 1989. The
Plan Administrator may limit withdrawals to Elective Deferrals and the earnings
thereon as stipulated above. Hardship withdrawals are subject to the Spousal
consent requirements contained in Code Sections 401(a)(11) and 417. Only the
following reasons are valid to obtain Hardship withdrawal:
(a) medical expenses [within the meaning of Code Section 213(d)],
incurred or necessary for the medical care of the Participant, his or
her Spouse, children and other dependents,
(b) the purchase (excluding mortgage payments) of the principal residence
for the Participant,
(c) payment of tuition and related educational expenses for the next
twelve (12) months of post-secondary education for the Participant,
his or her Spouse, children or other dependents, or
(d) the need to prevent eviction of the Employee from or a foreclosure on
the mortgage of, the Employee's principal residence.
Furthermore, the following conditions must be met in order for a withdrawal to
be authorized:
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<PAGE>
(e) the Participant has obtained all distributions, other than hardship
distributions, and all nontaxable loans under all plans maintained
by the Employer,
(f) all plans maintained by the Employer, other than flexible benefit
plans under Code Section 125 providing for current benefits,
provide that the Employee's Elective Deferrals and Voluntary
Contributions will be suspended for twelve months after the receipt
of the Hardship distribution,
(g) the distribution is not in excess of the amount of the immediate and
heavy financial need [(a) through (d) above], including amounts
necessary to pay any federal, state or local income tax or penalties
reasonably anticipated to result from the distribution, and
(h) all plans maintained by the Employer provide that an Employee may not
make Elective Deferrals for the Employee's taxable year immediately
following the taxable year of the Hardship distribution in excess of
the applicable limit under Code Section 402(g) for such taxable
year, less the amount of such Employee's pre-tax contributions for
the taxable year of the Hardship distribution.
If a distribution is made at a time when a Participant has a nonforfeitable
right to less than 100% of the account balance derived from Employer
contributions and the Participant may increase the nonforfeitable percentage in
the account:
(a) A separate account will be established for the Participant's interest
in the Plan as of the time of the distribution, and
(b) At any relevant time the Participant's nonforfeitable portion of the
separate account will be equal to an amount ("X") determined by the
formula:
X = P [AB + (R X D)] - (R X D)
For purposes of applying the formula: "P" is the nonforfeitable percentage at
the relevant time, "AB" is the account balance at the relevant time, "D" is the
amount of the distribution and "R" is the ratio of the account balance at the
relevant time to the account balance after distribution.
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ARTICLE VII
DISTRIBUTION REQUIREMENTS
7.1 Joint And Survivor Annuity Requirements All distributions made under the
terms of this Plan must comply with the provisions of Article VIII includ-
ing, if applicable, the safe harbor provisions thereunder.
7.2 Minimum Distribution Requirements All distributions required under this
Article shall be determined and made in accordance with the minimum distribution
requirements of Code Section 401(a)(9) and the regulations thereunder,
including the minimum distribution incidental benefit rules found at Regulations
Section l.401(a)(9)-2. The entire interest of a Participant must be
distributed or begin to be distributed no later than the Participant's Required
Beginning Date. Life expectancy and joint and last survivor life expectancy are
computed by using the expected return multiples found in Tables V and VI of
Regulations Section 1.72-9.
7.3 Limits On Distribution Periods As of the First Distribution Calendar Year,
distributions if not made in a single-sum, may only be made over one of the
following periods (or a combination thereof):
(a) the life of the Participant,
(b) the life of the Participant and a Designated Beneficiary,
(c) a period certain not extending beyond the life expectancy of the
participant, or
(d) a period certain not extending beyond the joint and last survivor
expectancy of the Participant and a designated beneficiary.
7.4 Required Distributions On Or After The Required Beginning Date
(a) If a participant's benefit is to be distributed over (1) a period not
extending beyond the life expectancy of the Participant or the joint
life and last survivor expectancy of the Participant and the
Participant's Designated Beneficiary or (2) a period not extending
beyond the life expectancy of the Designated Beneficiary, the amount
required to be distributed for each calendar year, beginning
with distributions for the First Distribution Calendar Year, must at
least equal the quotient obtained by dividing the Participant's
benefit by the Applicable Life Expectancy.
(b) For calendar years beginning before 1989, if the Participant's Spouse
is not the designated Beneficiary, the method of distribution selected
must have assured that at least 50% of the Present Value of the amount
available for distribution was to be paid within the life expectancy
of the Participant.
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(c) For calendar years beginning after 1988, the amount to be distributed
each year, beginning with distributions for the First Distribution
Calendar Year shall not be less than the quotient obtained by dividing
the Participant's benefit by the lesser of (1) the Applicable Life
Expectancy or (2) if the Participant's Spouse is not the Designated
Beneficiary, the applicable divisor determined from the table set
forth in Q&A-4 of Regulations Section l.401(a)(9)-2. Distributions
after the death of the Participant shall be distributed using the
Applicable Life Expectancy as the relevant divisor without regard to
Regulations Section l.401(a)(9)-2.
(d) The minimum distribution required for the Participant's First
Distribution Calendar Year must be made on or before the Participant's
Required Beginning Date. The minimum distribution for other calendar
years, including the minimum distribution for the Distribution
Calendar Year in which the Participant's Required Beginning Date
occurs, must be made on or before December 31 of that Distribution
Calendar Year.
(e) If the Participant's benefit is distributed in the form of an annuity
purchased from an insurance company, distributions thereunder shall be
made in accordance with the requirements of Code Section 401(a)(9) and
the Regulations thereunder.
(f) For purposes of determining the amount of the required distribution
for each Distribution Calendar Year, the account balance to be used is
the account balance determined as of the last valuation preceding the
Distribution Calendar Year. This balance will be increased by the
amount of any contributions or forfeitures allocated to the account
balance after the valuation date in such preceding calendar year. Such
balance will also be decreased by distributions made after the
Valuation Date in such preceding Calendar Year.
(g) For purposes of subparagraph 7.4(f), if any portion of the minimum
distribution for the First Distribution Calendar Year is made in the
second Distribution Calendar Year on or before the Required Beginning
Date, the amount of the minimum distribution made in the second
Distribution Calendar Year shall be treated as if it had been made in
the immediately preceding Distribution Calendar Year.
7.5 Required Beginning Date
(a) General Rule. The Required Beginning Date of a Participant is the
first day of April of the calendar year following the calendar year in
which the Participant attains age 70-1/2.
(b) Transitional Rules. The Required Beginning Date of a Participant who
attains age 70-1/2 before 1988, shall be determined in accordance
with (1) or (2) below:
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(1) Non-5-percent owners. The Required Beginning Date of a Participant who
is not a 5-percent owner is the first day of April of the calendar
year following the calendar year in which the later of retirement or
attainment of age 70-1/2 occurs. In the case of a Participant who is
not a 5-percent owner who attains age 70-1/2 during 1988 and who has
not retired as of January 1, 1989, the Required Beginning Date is
April 1, 1990.
(2) 5-percent owners. The Required Beginning Date of a Participant who is
a 5-percent owner during any year beginning after 1979, is the first
day of April following the later of:
(i) the calendar year in which the Participant attains age 70-
1/2, or
(ii) the earlier of the calendar year with or within which ends the
plan year in which the Participant becomes a 5-percent owner,
or the calendar year in which the Participant retires.
(c) A Participant is treated as a 5-percent owner for purposes of this
Paragraph if such Participant is a 5-percent owner as defined in Code
Section 416(i) (determined in accordance with Code Section 416 but
without regard to whether the Plan is Top-Heavy) at any time during
the Plan Year ending with or within the calendar year in which such
Owner attains age 66-1/2 or any subsequent Plan Year.
(d) Once distributions have begun to a 5-percent owner under this
paragraph, they must continue to be distributed, even if the
Participant ceases to be a 5-percent owner in a subsequent year.
7.6 Transitional Rule
(a) Notwithstanding the other requirements of this Article and subject to
the requirements of Article VIII, Joint and Survivor Annuity
Requirements, distribution on behalf of any Employee, including a 5-
percent owner, may be made in accordance with all of the following
requirements (regardless of when such distribution commences):
(1) The distribution by the Trust is one which would not have
disqualified such Trust under Code Section 401(a)(9) as in effect
prior to amendment by the Deficit Reduction Act of 1984.
(2) The distribution is in accordance with a method of distribution
designated by the Employee whose interest in the Trust is being
distributed or, if the Employee is deceased, by a beneficiary of
such Employee.
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<PAGE>
(3) Such designation was in writing, was signed by the Employee or
the beneficiary, and was made before 1984.
(4) The Employee had accrued a benefit under the Plan as of December
31, 1983.
(5) The method of distribution designated by the Employee or the
beneficiary specifies the time at which distribution will
commence, the period over which distributions will be made, and
in the case of any distribution upon the Employee's death, the
beneficiaries of the Employee listed in order of priority.
(b) A distribution upon death will not be covered by this transitional
rule unless the information in the designation contains the required
information described above with respect to the distributions to be
made upon the death of the Employee.
(c) For any distribution which commences before 1984, but continues after
1983, the Employee or the beneficiary, to whom such distribution is
being made, will be presumed to have designated the method of
distribution under which the distribution is being made if, the method
of distribution was specified in writing and the distribution
satisfies the requirements in subparagraphs (a)(1) and (5) above.
(d) If a designation is revoked, any subsequent distribution must satisfy
the requirements of Code Section 401(a)(9) and the regulations
thereunder. If a designation is revoked subsequent to the date
distributions are required to begin, the Trust must distribute by the
end of the calendar year following the calendar year in which the
revocation occurs the total amount not yet distributed which would
have been required to have been distributed to satisfy Code Section
401(a)(9) and the regulations thereunder, but for the section
242(b)(2) election of the Tax Equity and Fiscal Responsibility Act of
1982. For calendar years beginning after 1988, such distributions must
meet the minimum distribution incidental benefit requirements in
section 1.401(a)(9)-2 of the Income Tax Regulations. Any changes in
the designation will be considered to be a revocation of the
designation. However, the mere substitution or addition of another
beneficiary (one not named in the designation) under the designation
will not be considered to be a revocation of the designation, so long
as such substitution or addition does not alter the period over which
distributions are to be made under the designation, directly or
indirectly (for example, by altering the relevant measuring life). In
the case in which an amount is transferred or rolled over from one
plan to another plan, the rules in Q&A J-2 and Q&A J-3 of the
regulations shall apply.
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<PAGE>
7.7 Designation Of Beneficiary For Death Benefit Each Participant shall file
a written designation of beneficiary with the Employer upon qualifying for
participation in this Plan. Such designation shall remain in force until
revoked by the Participant by filing a new beneficiary form with the Employer.
The Participant may elect to have a portion of his or her account balance
invested in an insurance contract. If an insurance contract is purchased under
the Plan, the Trustee must be named as Beneficiary under the terms of the
contract. However, the Participant shall designate a Beneficiary to receive
the proceeds of the contract after settlement is received by the Trustee. Under
a profit-sharing plan satisfying the requirements of paragraph 8.7, the
Designated Beneficiary shall be the Participant's Surviving Spouse, if any,
unless such Spouse properly consents otherwise.
7.8 Nonexistence Of Beneficiary Any portion of the amount payable hereunder
which is not disposed of because of the Participant's or former Participant's
failure to designate a beneficiary, or because all of the Designated
Beneficiaries predeceased the Participant, shall be paid to his or her Spouse.
If the Participant had no Spouse at the time of death, payment shall be made to
the personal representative of his or her estate in a lump sum.
7.9 Distribution Beginning Before Death If the Participant dies after
distribution of his or her interest has begun, the remaining portion of such
interest will continue to be distributed at least as rapidly as under the method
of distribution being used prior to the Participant's death.
7.10 Distribution Beginning After Death If the Participant dies before
distribution of his or her interest begins, distribution of the Participant's
entire interest shall be completed by December 31 of the calendar year
containing the fifth anniversary of the Participant's death except to the extent
that an election is made to receive distributions in accordance with (a) or (b)
below:
(a) If any portion of the Participant's interest is payable to a
Designated Beneficiary, distributions may be made over the life or
over a period certain not greater than the life expectancy of the
Designated Beneficiary commencing on or before December 31 of the
calendar year immediately following the calendar year in which the
Participant died;
(b) If the Designated Beneficiary is the Participant's surviving Spouse,
the date distributions are required to begin in accordance with (a)
above shall not be earlier than the later of (1) December 31 of the
calendar year immediately following the calendar year in which the
participant died or (2) December 31 of the calendar year in which the
Participant would have attained age 70-1/2.
If the Participant has not made an election pursuant to this paragraph 7.10 by
the time of his or her death, the Participant's Designated Beneficiary must
elect the method of distribution no later than the earlier of (1) December 31 of
the calendar year in which distributions would be required to begin under this
section, or (2) December 31 of the calendar year which contains the fifth
anniversary of the date of death of the participant. If the Participant has no
Designated Beneficiary, or if the Designated Beneficiary does not elect a method
of distribution, then distribution of the Participant's entire interest must be
completed by December 31 of the calendar year containing the fifth anniversary
of the Participant's death.
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<PAGE>
For purposes of this paragraph if the Surviving Spouse dies after the
Participant, but before payments to such Spouse begin, the provisions of this
paragraph with the exception of paragraph (b) therein, shall be applied as if
the Surviving Spouse were the Participant. For the purposes of this paragraph
and paragraph 7.9, distribution of a Participant's interest is considered to
begin on the Participant's Required Beginning Date (or, if the preceding
sentence is applicable, the date distribution is required to begin to the
Surviving Spouse). If distribution in the form of an annuity described in
paragraph 7.4(e) irrevocably commences to the Participant before the Required
Beginning Date, the date distribution is considered to begin is the date
distribution actually commences.
For purposes of paragraph 7.9 and this paragraph, if an amount is payable to
either a minor or an individual who has been declared incompetent, the benefits
shall be paid to the legally appointed guardian for the benefit of said minor or
incompetent individual, unless the court which appointed the guardian has
ordered otherwise.
7.11 Distribution Of Excess Elective Deferrals
(a) Notwithstanding any other provision of the Plan, Excess Elective
Deferrals plus any income and minus any loss allocable thereto, shall
be distributed no later than April 15, 1988, and each April 15
thereafter, to Participants to whose accounts Excess Elective
Deferrals were allocated for the preceding taxable year, and who claim
Excess Elective Deferrals for such taxable year. Excess Elective
Deferrals shall be treated as Annual Additions under the Plan, unless
such amounts are distributed no later than the first April 15th
following the close of the Participant's taxable year. A Participant
is deemed to notify the Plan Administrator of any Excess Elective
Deferrals that arise by taking into account only those Elective
Deferrals made to this Plan and any other plans of this Employer.
(b) Furthermore, a Participant who participates in another plan allowing
Elective Deferrals may assign to this Plan any Excess Elective
Deferrals made during a taxable year of the Participant, by notifying
the Plan Administrator of the amount of the Excess Elective Deferrals
to be assigned. The Participant's claim shall be in writing; shall be
submitted to the Plan Administrator not later than March 1 of each
year; shall specify the amount of the Participant's Excess Elective
Deferrals for the preceding taxable year; and shall be accompanied by
the Participant's written statement that if such amounts are not
distributed, such Excess Elective Deferrals, when added to amounts
deferred under other plans or arrangements described in Code Sections
401(k), 408(k) [Simplified Employee Pensions], or 403(b) [annuity
programs for public schools and charitable organizations] will exceed
the $7,000 limit as adjusted under Code Section 415(d) imposed on the
Participant by Code Section 402(g) for the year in which the deferral
occurred.
(c) Excess Elective Deferrals shall be adjusted for any income or loss up
to the end of the taxable year, during which such excess was deferred.
Income or loss will be calculated under the method used to calculate
investment earnings and losses elsewhere in the Plan.
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<PAGE>
(d) If the Participant receives a return of his or her Elective
Deferrals, the amount of such contributions which are returned must
be brought into the Employee's taxable income.
7.12 Distributions of Excess Contributions
(a) Notwithstanding any other provision of this Plan, Excess
Contributions, plus any income and minus any loss allocable thereto,
shall be distributed no later than the last day of each Plan Year to
Participants to whose accounts such Excess Contributions were
allocated for the preceding Plan Year. If such excess amounts are
distributed more than 2-1/2 months after the last day of the Plan Year
in which such excess amounts arose, a ten (10) percent excise tax will
be imposed on the Employer maintaining the Plan with respect to such
amounts. Such distributions shall be made to Highly Compensated
Employees on the basis of the respective portions of the Excess
Contributions attributable to each of such Employees. Excess
Contributions of Participants who are subject to the Family Member
aggregation rules of Code Section 414(q)(6) shall be allocated among
the Family Members in proportion to the Elective Deferrals (and
amounts treated as Elective Deferrals) of each Family Member that is
combined to determine the Average Deferral Percentage.
(b) Excess Contributions (including the amounts recharacterized)
shall be treated as Annual Additions under the Plan.
(c) Excess Contributions shall be adjusted for any income or loss up to
the end of the Plan Year. Income or loss will be calculated under
the method used to calculate investment earnings and losses elsewhere
in the Plan.
(d) Excess Contributions shall be distributed from the Participant's
Elective Deferral account and Qualified Matching Contribution account
(if applicable) in proportion to the Participant's Elective Deferrals
and Qualified Matching Contributions (to the extent used in the ADP
test) for the Plan Year. Excess Contributions shall be distributed
from the Participant's Qualified Non-Elective Contribution account
only to the extent that such Excess Contributions exceed the balance
in the Participant's Elective Deferral account and Qualified Matching
Contribution account.
7.13 Distribution Of Excess Aggregate Contributions
(a) Notwithstanding any other provision of this Plan, Excess
Aggregate Contributions, plus any income and minus any loss allocable
thereto, shall be forfeited, if forfeitable, or if not forfeitable,
distributed no later than the last day of each Plan Year to
Participants to whose accounts such Excess Aggregate Contributions
were allocated for the preceding Plan Year. Excess Aggregate
Contributions shall be allocated to Participants who are subject to
the Family Member aggregation rules of Code Section 414(q)(6) in the
manner prescribed by the regulations.
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<PAGE>
If such Excess Aggregate Contributions are distributed more than 2-1/2
months after the last day of the Plan Year in which such excess
amounts arose, a ten (10) percent excise tax will be imposed on the
Employer maintaining the Plan with respect to those amounts. Excess
Aggregate Contributions shall be treated as Annual Additions under the
plan.
(b) Excess Aggregate Contributions shall be adjusted for any income or
loss up to the end of the Plan Year. The income or loss allocable to
Excess Aggregate Contributions is the sum of income or loss for the
Plan Year allocable to the Participant's Voluntary Contribution
account, Matching Contribution account (if any, and if all amounts
therein are not used in the ADP test) and, if applicable, Qualified
Non-Elective Contribution account and Elective Deferral account,
Income or loss will be calculated under the method used to calculate
investment earnings and losses elsewhere in the Plan.
(c) Forfeitures of Excess Aggregate Contributions may either be
reallocated to the accounts of non-Highly Compensated Employees or
applied to reduce Employer contributions, as elected by the employer
in the Adoption Agreement.
(d) Excess Aggregate Contributions shall be forfeited if such amount is
not vested. If vested, such excess shall be distributed on a prorata
basis from the Participant's Voluntary Contribution account (and, if
applicable, the Participant's Qualified Non-Elective Contribution
account, Matching Contribution account, Qualified Matching
Contribution account, or Elective Deferral account, or both).
45
<PAGE>
ARTICLE VIII
JOINT AND SURVIVOR ANNUITY REQUIREMENTS
8.1 Applicability Of Provisions The provisions of this Article shall apply to
any Participant who is credited with at least one Hour of Service with the
Employer on or after August 23, 1984 and such other Participants as provided in
paragraph 8.8.
8.2 Payment Of Qualified Joint And Survivor Annuity Unless an optional form of
benefit is selected pursuant to a Qualified Election within the 90-day period
ending on the Annuity Starting Date, a married Participant's Vested Account
Balance will be paid in the form of a Qualified Joint and Survivor Annuity and
an unmarried Participant's Vested Account Balance will be paid in the form of a
life annuity. The Participant may elect to have such annuity distributed upon
attainment of the Early Retirement Age under the Plan.
8.3 Payment Of Qualified Pre-Retirement Survivor Annuity Unless an optional
form of benefit has been selected within the Election Period pursuant to a
Qualified Election, if a Participant dies before benefits have commenced then
the Participant's Vested Account Balance shall be paid in the form of an annuity
for the life of the Surviving Spouse. The Surviving Spouse may elect to have
such annuity distributed within a reasonable period after the Participant's
death.
A Participant who does not meet the age 35 requirement set forth in the Election
Period as of the end of any current Plan Year may make a special qualified
election to waive the qualified Pre-retirement Survivor Annuity for the period
beginning on the date of such election and ending on the first day of the Plan
Year in which the Participant will attain age 35. Such election shall not be
valid unless the Participant receives a written explanation of the Qualified
Pre-retirement Survivor Annuity in such terms as are comparable to the
explanation required under paragraph 8.5. Qualified Pre-retirement Survivor
Annuity coverage will be automatically reinstated as of the first day of the
Plan Year in which the Participant attains age 35. Any new waiver on or after
such date shall be subject to the full requirements of this Article.
8.4 Qualified Election A Qualified Election is an election to either waive a
Qualified Joint and Survivor Annuity or a qualified pre-retirement survivor
annuity. Any such election shall not be effective unless:
(a) the Participant's Spouse consents in writing to the election;
(b) the election designates a specific beneficiary, including any class of
beneficiaries or any contingent beneficiaries, which may not be changed
without spousal consent (or the Spouse expressly permits designations
by the Participant without any further spousal consent);
(c) the Spouse's consent acknowledges the effect of the election; and
(d) the Spouse's consent is witnessed by a Plan representative or notary
public.
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Additionally, a Participant's waiver of the Qualified Joint and Survivor
Annuity shall not be effective unless the election designates a form of benefit
payment which may not be changed without spousal consent (or the Spouse
expressly permits designations by the Participant without any further spousal
consent). If it is established to the satisfaction of the Plan Administrator
that there is no Spouse or that the Spouse cannot be located, a waiver will be
deemed a Qualified Election. Any consent by a Spouse obtained under this
provision (or establishment that the consent of a Spouse may not be obtained)
shall be effective only with respect to such Spouse. A consent that permits
designations by the Participant without any requirement of further consent by
such Spouse must acknowledge that the Spouse has the right to limit consent
to a specific beneficiary, and a specific form of benefit where applicable, and
that the Spouse voluntarily elects to relinquish either or both of such rights.
A revocation of a prior waiver may be made by a Participant without the
consent of the Spouse at any time before the commencement of benefits. The
number of revocations shall not be limited. No consent obtained under this
provision shall be valid unless the Participant has received notice as provided
in paragraphs 8.5 and 8.6 below.
8.5 Notice Requirements For Qualified Joint And Survivor Annuity In the case
of a Qualified Joint and Survivor Annuity, the Plan Administrator shall, no less
than 30 days and no more than 90 days prior to the Annuity Starting date,
provide each Participant a written explanation of:
(a) the terms and conditions of a Qualified Joint and Survivor Annuity;
(b) the Participant's right to make and the effect of an election to waive
the Qualified Joint and Survivor Annuity form of benefit;
(c) the rights of a Participant's Spouse; and
(d) the right to make, and the effect of, a revocation of a previous
election to waive the Qualified Joint and Survivor Annuity.
8.6 Notice Requirements For Qualified Pre-Retirement Survivor Annuity In
the case of a qualified pre-retirement survivor annuity as described in
paragraph 8.3, the Plan Administrator shall provide each Participant within the
applicable period for such Participant a written explanation of the qualified
pre-retirement survivor annuity in such terms and in such manner as would be
comparable to the explanation provided for meeting the requirements of paragraph
8.5 applicable to a Qualified Joint and Survivor Annuity. The applicable period
for a Participant is whichever of the following periods ends last:
(a) the period beginning with the first day of the Plan Year in which the
Participant attains age 32 and ending with the close of the Plan Year
preceding the Plan Year in which the Participant attains age 35;
(b) a reasonable period ending after the individual becomes a Participant:
(c) a reasonable period ending after this Article first applies to the
Participant. Notwithstanding the foregoing, notice must be
provided within a reasonable period ending after separation from
Service in the case of a Participant who separates from Service before
attaining age 35.
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For purposes of applying the preceding paragraph, a reasonable period ending
after the events described in (b) and (c) is the end of the two-year period
beginning one-year prior to the date the applicable event occurs, and ending
one-year after that date. In the case of a Participant who separates from
Service before the Plan Year in which age 35 is attained, notice shall be
provided within the two-year period beginning one year prior to separation and
ending one year after separation. If such a Participant subsequently returns
to employment with the Employer, the applicable period for such Participant
shall be re-determined.
8.7 Special Safe-Harbor Exception For Certain Profit-Sharing Plans
(a) This paragraph shall apply to a Participant in a profit-sharing plan,
and to any distribution, made on or after the first day of the first
plan year beginning after 1988, from or under a separate account
attributable solely to Qualified Voluntary contributions, as maintained
on behalf of a Participant in a money purchase pension plan, (including
a target benefit plan) if the following conditions are satisfied:
(1) the Participant does not or cannot elect payments in the form of a
life annuity; and
(2) on the death of a Participant, the Participant's Vested Account
Balance will be paid to the Participant's Surviving Spouse, but if
there is no Surviving Spouse, or if the Surviving Spouse has
consented in a manner conforming to a Qualified Election, then to
the Participant's Designated Beneficiary.
The Surviving Spouse may elect to have distribution of the Vested
Account Balance commence within the 90-day period following the date of
the Participant's death. The account balance shall be adjusted for
gains or losses occurring after the Participant's death in accordance
with the provisions of the Plan governing the adjustment of account
balances for other types of distributions. These safe-harbor rules
shall not be operative with respect to a Participant in a profit-
sharing plan if that plan is a direct or indirect transferee of a
Defined Benefit Plan, money purchase plan, a target benefit plan, stock
bonus plan, or profit-sharing plan which is subject to the survivor
annuity requirements of Code Section 401(a)(11) and Code Section 417,
and would therefore have a Qualified Joint and Survivor Annuity as its
normal form of benefit.
(b) The Participant may waive the spousal death benefit described in this
paragraph at any time provided that no such waiver shall be effective
unless it satisfies the conditions (described in paragraph 8.4) that
would apply to the Participant's waiver of the Qualified Pre-Retirement
Survivor Annuity.
(c) If this paragraph 8.7 is operative, then all other provisions of this
Article other than paragraph 8.8 are inoperative.
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8.8 Transitional Joint And Survivor Annuity Rules Special transition
rules apply to Participants who were not receiving benefits on August 23, 1984.
(a) Any living Participant not receiving benefits on August 23, 1984, who
would otherwise not receive the benefits prescribed by the previous
paragraphs of this Article, must be given the opportunity to elect to
have the prior paragraphs of this Article apply if such Participant
is credited with at least one Hour of Service under this Plan or a
predecessor Plan in a Plan Year beginning on or after January 1, 1976
and such Participant had at least 10 Years of Service for vesting
purposes when he or she separated from Service.
(b) Any living Participant not receiving benefits on August 23, 1984, who
was credited with at least one Hour of Service under this Plan or a
predecessor Plan on or after September 2, 1974, and who is not
otherwise credited with any Service in a Plan Year beginning on or
after January 1, 1976, must be given the opportunity to have his or
her benefits paid in accordance with paragraph 8.9.
(c) The respective opportunities to elect [as described in (a) and (b)
above] must be afforded to the appropriate Participants during the
period commencing on August 23, 1984 and ending on the date benefits
would otherwise commence to said Participants.
8.9 Automatic Joint And Survivor Annuity And Early Survivor Annuity Any
Participant who has elected pursuant to paragraph 8.8(b) and any Participant who
does not elect under paragraph 8.8(a) or who meets the requirements of paragraph
8.8(a), except that such Participant does not have at least 10 years of vesting
Service when he or she separates from Service, shall have his or her benefits
distributed in accordance with all of the following requirements if benefits
would have been payable in the form of a life annuity.
(a) Automatic Joint and Survivor Annuity. If benefits in the form of a
life annuity become payable to a married Participant who:
(1) begins to receive payments under the Plan on or after Normal
Retirement Age, or
(2) dies on or after Normal Retirement Age while still working for the
Employer, or
(3) begins to receive payments on or after the Qualified Early
Retirement Age, or
(4) separates from Service on or after attaining Normal Retirement (or
the Qualified Early Retirement Age) and after satisfying the
eligibility requirements for the payment of benefits under the
Plan and thereafter dies before beginning to receive such
benefits, then such benefits will be received under this
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Plan in the form of a Qualified Joint and Survivor Annuity,
unless the Participant has elected otherwise during the Election
Period. The Election Period must begin at least 6 months before
the Participant attains Qualified Early Retirement Age and end
not more than 90 days before the commencement of benefits. Any
election will be in writing and may be changed by the
Participant at any time.
(b) Election of Early Survivor Annuity. A Participant who is employed
after attaining the Qualified Early Retirement Age will be given the
opportunity to elect, during the Election Period, to have a survivor
annuity payable on death. If the Participant elects the survivor
annuity, payments under such annuity must not be less than the
payments which would have been made to the Spouse under the Qualified
Joint and Survivor Annuity if the Participant had retired on the day
before his or her death. Any election under this provision will be in
writing and may be changed by the Participant at any time. The
Election Period begins on the later of:
(1) the 90th day before the Participant attains the Qualified Early
Retirement Age, or
(2) the date on which participation begins, and ends on the date the
Participant terminates employment.
8.10 Annuity Contracts Any annuity contract distributed under this Plan must
be nontransferable. The terms of any annuity contract purchased and distributed
by the Plan to a Participant or Spouse shall comply with the requirements of
this Plan.
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ARTICLE IX
VESTING
9.1 Employee Contributions A Participant shall always have a 100% vested and
nonforfeitable interest in his or her Elective Deferrals, Voluntary
Contributions, Qualified Voluntary Contributions, Rollover Contributions,
and Transfer Contributions plus the earnings thereon. No forfeiture of
Employer related contributions (including any minimum contributions made under
paragraph 14.2) will occur solely as a result of an Employee's withdrawal of
any Employee contributions.
9.2 Employer Contributions A Participant shall acquire a vested and
nonforfeitable interest in his or her account attributable to Employer
contributions in accordance with the table selected in the Adoption Agreement,
provided that if a Participant is not already fully vested, he or she shall
become so upon attaining Normal Retirement Age, Early Retirement Age, on death
prior to normal retirement, on retirement due to Disability, or on termination
of the Plan.
9.3 Computation Period The computation period for purposes of determining
Years of Service and Breaks in Service for purposes of computing a
Participant's nonforfeitable right to his or her account balance derived from
Employer contributions shall be determined by the Employer in the Adoption
Agreement. In the event a former Participant with no vested interest in his or
her Employer contribution account requalifies for participation in the Plan
after incurring a Break in Service, such Participant shall be credited for
vesting with all pre-break and post-break Service.
9.4 Requalification Prior To Five Consecutive One-Year Breaks In Service The
account balance of such Participant shall consist of any undistributed amount
in his or her account as of the date of re-employment plus any future
contributions added to such account plus the investment earnings on the
account. The Vested Account Balance of such Participant shall be determined by
multiplying the Participant's account balance (adjusted to include any
distribution or redeposit made under paragraph 6.3) by such Participant's
vested percentage. All Service of the Participant, both prior to and following
the break, shall be counted when computing the Participant's vested percentage.
9.5 Requalification After Five Consecutive One-Year Breaks In Service If such
Participant is not fully vested upon re-employment, a new account shall be
established for such Participant to separate his or her deferred vested and
nonforfeitable account, if any, from the account to which new allocations will
be made. The Participant's deferred account to the extent remaining shall be
fully vested and shall continue to share in earnings and losses of the Fund.
When computing the Participant's vested portion of the new account, all pre-
break and post-break Service shall be counted. However, notwithstanding this
provision, no such former Participant who has had five consecutive one-year
Breaks in Service shall acquire a larger vested and nonforfeitable interest in
his or her prior account balance as a result of requalification hereunder.
9.6 Calculating Vested Interest A Participant's vested and nonforfeitable
interest shall be calculated by multiplying the fair market value of his or her
account attributable to Employer contributions on the Valuation Date preceding
distribution by the decimal equivalent of the vested percentage as of his or her
termination date. The amount attributable to Employer contributions for
purposes of the calculation includes amounts previously paid out pursuant to
paragraph 6.3 and
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not repaid. The Participant's vested and nonforfeitable interest, once
calculated above, shall be reduced to reflect those amounts previously paid out
to the Participant and not repaid by the Participant. The Participant's
vested and nonforfitable interest so determined shall continue to share in the
investment earnings and any increase or decrease in the fair market value of
the Fund up to the Valuation Date preceding or coinciding with payment.
9.7 Forfeitures Any balance in the account of a Participant who has
separated from Service to which he or she is not entitled under the foregoing
provisions, shall be forfeited and applied as provided in the Adoption
Agreement. A forfeiture may only occur if the Participant has received a
distribution from the Plan or if the Participant has incurred five consecutive
1-year Breaks in Service. Furthermore, a Highly Compensated Employee's
Matching Contributions may be forfeited, even if vested, if the contributions to
which they relate are Excess Deferrals, Excess Contributions or Excess
Aggregate Contributions.
9.8 Amendment Of Vesting Schedule No amendment to the Plan shall have the
effect of decreasing a Participant's vested interest determined without regard
to such amendment as of the later of the date such amendment is adopted or the
date it becomes effective. Further, if the vesting schedule of the Plan is
amended, or the Plan is amended in any way that directly or indirectly affects
the computation of any Participant's nonforfeitable percentage or if the Plan
is deemed amended by an automatic change to or from a Top-Heavy vesting
schedule, each Participant with at least three Years of Service with the
Employer may elect, within a reasonable period after the adoption of the
amendment, to have his or her nonforfeitable percentage computed under the Plan
without regard to such amendment. For Participants who do not have at least
one Hour of Service in any Plan Year beginning after 1988, the preceding
sentence shall be applied by substituting "Five Years of Service" for "Three
Years of Service" where such language appears. The period during which the
election may be made shall commence with the date the amendment is adopted and
shall end on the later of:
(a) 60 days after the amendment is adopted;
(b) 60 days after the amendment becomes effective; or
(c) 60 days after the Participant is issued written notice of the
amendment by the Employer or the Trustee/Custodian. If the
Trustee/Custodian is asked to so notify, the Fund will be charged for
the costs thereof.
No amendment to the Plan shall be effective to the extent that it has the
effect of decreasing a Participant's accrued benefit. Notwithstanding the
preceding sentence, a Participant's account balance may be reduced to the extent
permitted under section 412(c)(8) of the Code (relating to financial hardships).
For purposes of this paragraph, a Plan amendment which has the effect of
decreasing a Participant's account balance or eliminating an optional form of
benefit, with respect to benefits attributable to service before the amendment,
shall be treated as reducing an accrued benefit.
9.9 Service With Controlled Groups All Years of Service with other
members of a controlled group of corporations [as defined in Code Section
414(b)], trades or businesses under common control [as defined in Code Section
414(c)], or members of an affiliated service group [as defined in Code Section
414(m)] shall be considered for purposes of determining a Participant's
nonforfeitable percentage.
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ARTICLE X
LIMITATIONS ON ALLOCATIONS
AND ANTIDISCRIMINATION TESTING
10.1 Participation In This Plan Only If the Participant does not participate in
and has never participated in another qualified plan, a Welfare Benefit Fund (as
defined in paragraph 1.89) or an individual medical account, as defined in Code
Section 415(1)(2), maintained by the adopting Employer, which provides an Annual
Addition as defined in paragraph 1.4, the amount of Annual Additions which may
be credited to the Participant's account for any Limitation Year will not exceed
the lesser of the Maximum Permissible Amount or any other limitation contained
in this Plan. If the Employer contribution that would otherwise be contributed
or allocated to the Participant's account would cause the Annual Additions for
the Limitation Year to exceed the Maximum Permissible Amount, the amount
contributed or allocated will be reduced so that the Annual Additions for the
Limitation Year will equal the Maximum Permissible Amount. Prior to determining
the Participant's actual Compensation for the Limitation Year, the Employer may
determine the Maximum Permissible Amount for a Participant on the basis of a
reasonable estimate of the Participant's Compensation for the Limitation Year,
uniformly determined for all Participants similarly situated. As soon as is
administratively feasible after the end of the Limitation Year, the Maximum
Permissible Amount for the Limitation Year will be determined on the basis of
the Participant's actual Compensation for the Limitation Year.
10.2 Disposition Of Excess Annual Additions If, pursuant to paragraph 10.1
or as a result of the allocation of forfeitures, there is an Excess Amount, the
excess will be disposed of under one of the following methods as determined in
the Adoption Agreement. If no election is made in the Adoption Agreement then
method "(a)" below shall apply.
(a) Suspense Account Method
(1) Any Elective Deferrals and nondeductible Employee Voluntary or
Required Voluntary Contributions, to the extent they would reduce
the Excess Amount, will be returned to the Participant;
(2) If after the application of paragraph (1) an Excess Amount still
exists, and the Participant is covered by the Plan at the end of
the Limitation Year, the Excess Amount in the Participant's
account will be used to reduce Employer contributions (including
any allocation of forfeitures) for such Participant in the next
Limitation Year, and each succeeding Limitation Year if
necessary;
(3) If after the application of paragraph (1) an Excess Amount still
exists, and the Participant is not covered by the Plan at the end
of the Limitation Year, the Excess Amount will be held
unallocated in a suspense account. The suspense account will be
applied to reduce future Employer contributions (including
allocation of any forfeitures) for all remaining Participants in
the next Limitation Year, and each succeeding Limitation Year if
necessary;
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(4) If a suspense account is in existence at any time during the
Limitation Year pursuant to this paragraph, it will not
participate in the allocation of investment gains and losses. If
a suspense account is in existence at any time during a
particular Limitation Year, all amounts in the suspense account
must be allocated and reallocated to Participants' accounts
before any Employer contributions or any Employee Contributions
may be made to the Plan for that Limitation Year. Excess amounts
may not be distributed to Participants or former Participants.
(b) Spillover Method
(1) Any Elective Deferrals and nondeductible Employee Voluntary or
Required Voluntary Contributions, to the extent they would
reduce the Excess Amount, will be returned to the Participant;
(2) Any Excess Amount which would be allocated to the account of an
individual Participant under the Plan's allocation formula will
be reallocated to other Participants in the same manner as other
Employer contributions. No such reallocation shall be made to the
extent that it will result in an Excess Amount being created in
such Participant's own account.
(3) To the extent that amounts cannot be reallocated under (1) above,
the suspense account provisions of (a) above will apply.
10.3 Participation In This Plan And Another Master and Prototype Defined
Contribution Plan, Welfare Benefit Fund Or Individual Medical Account Maintained
By The Employer The Annual Additions which may be credited to a Participant's
account under this Plan for any Limitation Year will not exceed the Maximum
Permissible Amount reduced by the Annual Additions credited to a Participant's
account under the other Master or Prototype Defined Contribution Plans, Welfare
Benefit Funds, and individual medical accounts as defined in Code Section
415(l)(2), maintained by the Employer, which provide an Annual Addition as
defined in paragraph 1.4 for the same Limitation Year. If the Annual Additions,
with respect to the Participant under other Defined Contribution Plans and
Welfare Benefit Funds maintained by the Employer, are less than the Maximum
Permissible Amount and the Employer contribution that would otherwise be
contributed or allocated to the Participant's account under this Plan would
cause the Annual Additions for the Limitation Year to exceed this limitation,
the amount contributed or allocated will be reduced so that the Annual Additions
under all such plans and funds for the Limitation Year will equal the Maximum
Permissible Amount. If the Annual Additions with respect to the Participant
under such other Defined Contribution Plans and Welfare Benefit Funds in the
aggregate are equal to or greater than the
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Maximum Permissible Amount, no amount will be contributed or allocated to the
Participant's account under this Plan for the Limitation Year. Prior to
determining the Participant's actual Compensation for the Limitation Year, the
Employer may determine the Maximum Permissible Amount for a Participant in the
manner described in paragraph 10.1. As soon as administratively feasible after
the end of the Limitation Year, the Maximum Permissible Amount for the
Limitation Year will be determined on the basis of the Participant's actual
Compensation for the Limitation Year.
10.4 Disposition Of Excess Annual Additions Under Two Plans If, pursuant to
paragraph 10.3 or as a result of forfeitures, a Participant's Annual Additions
under this Plan and such other plans would result in an Excess Amount for a
Limitation Year, the Excess Amount will be deemed to consist of the Annual
Additions last allocated except that Annual Additions attributable to a Welfare
Benefit Fund or Individual Medical Account as defined in Code Section 415(1)(2)
will be deemed to have been allocated first regardless of the actual allocation
date. If an Excess Amount was allocated to a Participant on an allocation date
of this Plan which coincides with an allocation date of another plan, the Excess
Amount attributed to this Plan will be the product of:
(a) the total Excess Amount allocated as of such date, times
(b) the ratio of:
(1) the Annual Additions allocated to the Participant for the
Limitation Year as of such date under the Plan, to
(2) the total Annual Additions allocated to the Participant for the
Limitation Year as of such date under this and all the other
qualified Master or Prototype Defined Contribution Plans.
Any Excess Amount attributed to this Plan will be disposed of in the manner
described in paragraph 10.2.
10.5 Participation In This Plan And Another Defined Contribution Plan Which
Is Not A Master Or Prototype Plan If the Participant is covered under another
qualified Defined Contribution Plan maintained by the Employer which is not a
Master or Prototype Plan, Annual Additions which may be credited to the
Participant's account under this Plan for any Limitation Year will be limited in
accordance with paragraphs 10.3 and 10.4 as though the other plan were a Master
or Prototype Plan, unless the Employer provides other limitations in the
Adoption Agreement.
10.6 Participation In This Plan And A Defined Benefit Plan If the Employer
maintains, or at any time maintained, a qualified Defined Benefit Plan covering
any Participant in this Plan, the sum of the Participant's Defined Benefit Plan
Fraction and Defined Contribution Plan Fraction will not exceed 1.0 in any
Limitation Year. For any Plan Year during which the Plan is Top-Heavy, the
Defined Benefit and Defined Contribution Plan Fractions shall be calculated in
accordance with Code Section 416(h). The Annual Additions which may be credited
to the Participant's account under this Plan for any Limitation Year will be
limited in accordance with the provisions set forth in the Adoption Agreement.
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10.7 Average Deferral Percentage (ADP) Test With respect to any Plan Year, the
Average Deferral Percentage for Participants who are Highly Compensated
Employees and the Average Deferral Percentage for Participants who are non-
Highly Compensated Employees must satisfy one of the following tests:
(a) Basic Test - The Average Deferral Percentage for Participants who
are Highly Compensated Employees for the Plan Year is not more than
1.25 times the Average Deferral Percentage for Participants who are
non-Highly Compensated Employees for the same Plan Year, or
(b) Alternative Test - The Average Deferral Percentage for Participants
who are Highly Compensated Employees for the Plan Year does not
exceed the Average Deferral Percentage for Participants who are non-
Highly Compensated Employees for the same Plan Year by more than 2
percentage points provided that the Average Deferral Percentage for
Participants who are Highly Compensated Employees is not more than
2.0 times the Average Deferral Percentage for Participants who are
non-Highly Compensated Employees.
10.8 Special Rules Relating To Application Of ADP Test
(a) The Actual Deferral Percentage for any Participant who is a Highly
Compensated Employee for the Plan Year and who is eligible to have
Elective Deferrals (and Qualified Non-Elective Contributions or
Qualified Matching Contributions, or both, if treated as Elective
Deferrals for purposes of the ADP test) allocated to his or her
accounts under two or more arrangements described in Code Section
401(k), that are maintained by the Employer, shall be determined as
if such Elective Deferrals (and, if applicable, such Qualified Non-
Elective Contributions or Qualified Matching Contributions, or both)
were made under a single arrangement. If a Highly Compensated
Employee participates in two or more cash or deferred arrangements
that have different Plan Years, all cash or deferred arrangements
ending with or within the same calendar year shall be treated as a
single arrangement.
(b) In the event that this Plan satisfies the requirements of Code
Sections 401(k), 401(a)(4), or 410(b), only if aggregated with one or
more other plans, or if one or more other plans satisfy the
requirements of such Code Sections only if aggregated with this Plan,
then this Section shall be applied by determining the Actual Deferral
Percentage of Employees as if all such plans were a single plan. For
Plan Years beginning after 1989, plans may be aggregated in order to
satisfy Code Section 401(k) only if they have the same Plan Year.
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(c) For purposes of determining the Actual Deferral Percentage of a
Participant who is a 5-percent owner or one of the ten most highly-
paid Highly Compensated Employees, the Elective Deferrals (and
Qualified Non-Elective Contributions or Qualified Matching
Contributions, or both, if treated as Elective Deferrals for purposes
of the ADP test) and Compensation of such Participant shall include
the Elective Deferrals (and, if applicable, Qualified Non-Elective
Contributions and Qualified Matching Contributions, or both) for the
Plan Year of Family Members as defined in paragraph 1.36 of this
Plan. Family Members, with respect to such Highly Compensated
Employees, shall be disregarded as separate Employees in determining
the ADP both for Participants who are non-Highly Compensated
Employees and for Participants who are Highly Compensated Employees.
In the event of repeal of the family aggregation rules under Code
Section 414(q)(6), all applications of such rules under this Plan
will cease as of the effective date of such repeal.
(d) For purposes of determining the ADP test, Elective Deferrals,
Qualified Non-Elective Contributions and Qualified Matching
Contributions must be made before the last day of the twelve-month
period immediately following the Plan Year to which contributions
relate.
(e) The Employer shall maintain records sufficient to demonstrate
satisfaction of the ADP test and the amount of Qualified Non-Elective
Contributions or Qualified Matching Contributions, or both, used in
such test.
(f) The determination and treatment of the Actual Deferral Percentage
amounts of any Participant shall satisfy such other requirements as
may be prescribed by the Secretary of the Treasury.
10.9 Recharacterization If the Employer allows for Voluntary Contributions in
the Adoption Agreement, a Participant may treat his or her Excess Contributions
as an amount distributed to the Participant and then contributed by the
Participant to the Plan. Recharacterized amounts will remain nonforfeitable and
subject to the same distribution requirements as Elective Deferrals.
Amounts may not be recharacterized by a Highly Compensated Employee to the
extent that such amount in combination with other Employee Contributions made by
that Employee would exceed any stated limit under the Plan on Voluntary
Contributions. Recharacterization must occur no later than two and one-half
months after the last day of the Plan Year in which such Excess Contributions
arose and is deemed to occur no earlier than the date the last Highly
Compensated Employee is informed in writing of the amount recharacterized and
the consequences thereof. Recharacterized amounts will be taxable to the
Participant for the Participant's tax year in which the Participant would have
received them in cash.
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10.10 Average Contribution Percentage (ACP) Test If the Employer makes Matching
Contributions or if the Plan allows Employees to make Voluntary Contributions
the Plan must meet additional nondiscrimination requirements provided under Code
Section 401(m). If Employee Contributions (including any Elective Deferrals
recharacterized as Voluntary Contributions) are made pursuant to this Plan, then
in addition to the ADP test referenced in paragraph 10.7, the Average
Contribution Percentage test is also applicable. The Average Contribution
Percentage for Participants who are Highly Compensated Employees for each Plan
Year and the Average Contribution Percentage for Participants who are Non-Highly
Compensated Employees for the same Plan Year must satisfy one of the following
tests:
(a) Basic Test - The Average Contribution Percentage for Participants
who are Highly Compensated Employees for the Plan Year shall not
exceed the Average Contribution Percentage for Participants who are
non-Highly Compensated Employees for the same Plan Year multiplied
by 1.25; or
(b) Alternative Test - The ACP for Participants who are Highly
Compensated Employees for the Plan Year shall not exceed the Average
Contribution Percentage for Participants who are non-Highly
Compensated Employees for the same Plan Year multiplied by two (2),
provided that the Average Contribution Percentage for Participants
who are Highly Compensated Employees does not exceed the Average
Contribution Percentage for Participants who are non-Highly
Compensated Employees by more than two (2) percentage points.
10.11 Special Rules Relating To Application Of ACP Test
(a) If one or more Highly Compensated Employees participate in both a
cash or deferred arrangement and a plan subject to the ACP test
maintained by the Employer and the sum of the ADP and ACP of those
Highly Compensated Employees subject to either or both tests exceeds
the Aggregate Limit, then the ADP or ACP of those Highly Compensated
Employees who also participate in a cash or deferred arrangement
will be reduced (beginning with such Highly Compensated Employee
whose ADP or ACP is the highest) as set forth in the Adoption
Agreement so that the limit is not exceeded. The amount by which
each Highly Compensated Employee's Contribution Percentage Amounts
is reduced shall be treated as an Excess Aggregate Contribution. The
ADP and ACP of the Highly Compensated Employees are determined after
any corrections required to meet the ADP and ACP tests. Multiple use
does not occur if both the ADP and ACP of the Highly Compensated
Employees does not exceed 1.25 multiplied by the ADP and ACP of the
non-Highly Compensated Employees.
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(b) For purposes of this Article, the Contribution Percentage for any
Participant who is a Highly Compensated Employee and who is eligible
to have Contribution Percentage Amounts allocated to his or her
account under two or more plans described in Code Section 401(a), or
arrangements described in Code Section 401(k) that are maintained by
the Employer, shall be determined as if the total of such
Contribution Percentage Amounts was made under each Plan. If a
Highly Compensated Employee participates in two or more cash or
deferred arrangements that have different plan years, all cash or
deferred arrangements ending with or within the same calendar year
shall be treated as a single arrangement.
(c) In the event that this Plan satisfies the requirements of Code
Sections 401(a)(4), 401(m), or 410(b) only if aggregated with one or
more other plans, or if one or more other plans satisfy the
requirements of such Code Sections only if aggregated with this
Plan, then this Section shall be applied by determining the
Contribution Percentage of Employees as if all such plans were a
single plan. For plan years beginning after 1989, plans may be
aggregated in order to satisfy Code Section 401(m) only if the
aggregated plans have the same Plan Year.
(d) For purposes of determining the Contribution percentage of a
Participant who is a five-percent owner or one of the ten most
highly-paid, Highly Compensated Employees, the Contribution
Percentage Amounts and Compensation of such Participant shall
include the Contribution Percentage Amounts and Compensation for the
Plan Year of Family Members as defined in Paragraph 1.36 of this
Plan. Family Members, with respect to Highly Compensated Employees,
shall be disregarded as separate Employees in determining the
Contribution Percentage both for Participants who are non-Highly
Compensated Employees and for Participants who are Highly
Compensated Employees. In the event of repeal of the family
aggregation rules under Code Section 414(q)(6), all applications of
such rules under this Plan will cease as of the effective date of
such repeal.
(e) For purposes of determining the Contribution Percentage test,
Employee Contributions are considered to have been made in the Plan
Year in which contributed to the trust. Matching Contributions and
Qualified Non-Elective Contributions will be considered made for a
Plan Year if made no later than the end of the twelve-month period
beginning on the day after the close of the Plan Year.
(f) The Employer shall maintain records sufficient to demonstrate
satisfaction of the ACP test and the amount of Qualified Non-
Elective Contributions or Qualified Matching Contributions, or both,
used in such test.
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(g) The determination and treatment of the Contribution Percentage of
any Participant shall satisfy such other requirements as may be
prescribed by the Secretary of the Treasury.
(h) Qualified Matching Contributions and Qualified Non-Elective
Contributions used to satisfy the ADP test may not be used to
satisfy the ACP test.
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ARTICLE XI
ADMINISTRATION
11.1 Plan Administrator The Employer shall be the named fiduciary and Plan
Administrator. These duties shall include:
(a) appointing the Plan's attorney, accountant, actuary, or any other party
needed to administer the Plan,
(b) directing the Trustee/Custodian with respect to payments from the fund,
(c) communicating with Employees regarding their participation and benefits
under the Plan, including the administration of all claims procedures,
(d) filing any returns and reports with the Internal Revenue Service,
Department of Labor, or any other governmental agency,
(e) reviewing and approving any financial reports, investment reviews, or
other reports prepared by any party appointed by the Employer under
paragraph (a),
(f) establishing a funding policy and investment objectives consistent with
the purposes of the Plan and the Employee Retirement Income Security
Act of 1974, and
(g) construing and resolving any question of Plan interpretation. The Plan
Administrator's interpretation of Plan provisions including eligibility
and benefits under the Plan is final, and unless it can be shown to be
arbitrary and capricious will not be subject to "de novo" review.
11.2 Trustee/Custodian The Trustee/Custodian shall be responsible for the
administration of investments held in the Fund. These duties shall include:
(a) receiving contributions under the terms of the Plan,
(b) making distributions from the Fund in accordance with written
instructions received from an authorized representative of the
Employer,
(c) keeping accurate records reflecting its administration of the Fund and
making such records available to the Employer for review and audit.
Within 90 days after each Plan Year, and within 90 days after its
removal or resignation, the Trustee/Custodian shall file with the
Employer an accounting of its administration of the Fund during such
year or from the end of the preceding Plan Year to the date of removal
or resignation. Such accounting shall include a statement of cash
receipts and disbursements since the date of its last accounting and
shall contain an asset list showing the fair market value of
investments held in the Fund as of the end of the Plan Year. The value
of marketable investments shall be determined using the most recent
price quoted on a na-
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tional securities exchange or over the counter market. The value of
non-marketable investments shall be determined in the sole judgement of the
Trustee/Custodian which determination shall be binding and conclusive. The value
of investments in securities or obligations of the Employer in which there is no
market shall be determined in the sole judgement of the Employer and the
Trustee/Custodian shall have no responsibility with respect to the valuation of
such assets. The Employer shall review the Trustee/Custodian's accounting and
notify the Trustee/Custodian in the event of its disapproval of the report
within 90 days, providing the Trustee/Custodian with a written description of
the items in question. The Trustee/Custodian shall have 60 days to provide the
Employer with a written explanation of the items in question. If the Employer
again disapproves, the Trustee/Custodian shall file its accounting in a court of
competent jurisdiction for audit and adjudication, and
(d) employing such agents, attorneys or other professionals as the Trustee
may deem necessary or advisable in the performance of its duties.
The Trustee's/Custodian's duties shall be limited to those described above. The
Employer shall be responsible for any other administrative duties required under
the plan or by applicable law.
11.3 Administrative Fees and Expenses All reasonable costs, charges and expenses
incurred by the Trustee/Custodian in connection with the administration of the
Fund and all reasonable costs, charges and expenses incurred by the Plan
Administrator in connection with the administration of the Plan (including fees
for legal services rendered to the Trustee/Custodian or Plan Administrator) may
be paid by the Employer, but if not paid by the Employer when due, shall be paid
from the Fund. Such reasonable compensation to the Trustee/Custodian as may be
agreed upon from time to time between the Employer and the Trustee/Custodian and
such reasonable compensation to the Plan Administrator as may be agreed upon
from time to time between the Employer and the Plan Administrator may be paid by
the Employer, but if not paid by the Employer when due shall be paid by the
Fund. The Trustee shall have the right to liquidate trust assets to cover its
fees. Notwithstanding the foregoing, no compensation other than reimbursement
for expenses shall be paid to a Plan Administrator who is the Employer or a
full-time Employee of the Employer. In the event any part of the Trust/Custodial
Account becomes subject to tax, all taxes incurred will be paid from the Fund
unless the Plan Administrator advises the Trustee/Custodian not to pay such tax.
11.4 Division of Duties And Indemnification
(a) The Trustee/Custodian shall have the authority and discretion to manage
and govern the Fund to the extent provided in this instrument, but does
not guarantee the Fund in any manner against investment loss or
depreciation in asset value, or guarantee the adequacy of the Fund to
meet and discharge all or any liabilities of the Plan.
(b) The Trustee/Custodian shall not be liable for the making, retention or
sale of any investment or reinvestment made by it, as herein provided,
or for any loss to, or diminuation of the Fund, or for any other loss
or damage which may result from the discharge of its duties hereunder
except to the extent it is
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judicially determined that the Trustee/Custodian has failed to exercise
the care, skill, prudence and diligence under the circumstances then
prevailing that a prudent person acting in a like capacity and familiar
with such matters would use in the conduct of an enterprise of a like
character with like aims.
(c) The Employer warrants that all directions issued to the
Trustee/Custodian by it or the Plan Administrator will be in accordance
with the terms of the Plan and not contrary to the provisions of the
Employee Retirement Income Security Act of 1974 and regulations issued
thereunder.
(d) The Trustee/Custodian shall not be answerable for any action taken
pursuant to any direction, consent, certificate, or other paper or
document on the belief that the same is genuine and signed by the
proper person. All directions by the Employer, Participant or the Plan
Administrator shall be in writing. The Employer shall deliver to the
Trustee/Custodian certificates evidencing the individual or individuals
authorized to act as set forth is the Adoption Agreement or as the
Employer may subsequently inform the Trustee/Custodian in writing and
shall deliver to the Trustee/Custodian specimens of their signatures.
(e) The duties and obligations of the Trustee/Custodian shall be limited to
those expressly imposed upon it by this instrument or subsequently
agreed upon by the parties. Responsibility for administrative duties
required under the Plan or applicable law not expressly imposed upon or
agreed to by the Trustee/Custodian, shall rest solely with the
Employer.
(f) The Trustee shall be indemnified and saved harmless by the Employer
from and against any and all liability to which the Trustee/Custodian
may be subjected, including all expenses reasonably incurred in its
defense, for any action or failure to act resulting from compliance
with the instructions of the Employer, the employees or agents of the
Employer, the Plan Administrator, or any other fiduciary to the Plan,
and for any liability arising from the actions or non-actions of any
predecessor Trustee/Custodian or fiduciary or other fiduciaries of the
Plan.
(g) The Trustee/Custodian shall not be responsible in any way for the
application of any payments it is directed to make or for the adequacy
of the Fund to meet and discharge any and all liabilities under the
Plan.
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ARTICLE XII
TRUST FUND/CUSTODIAL ACCOUNT
12.1 The Fund The Fund shall consist of all contributions made under Article
III and Article IV of the Plan and the investment thereof and earnings thereon.
All contributions and the earnings thereon less payment made under the terms of
the Plan, shall constitute the Fund. The Fund shall be administered as provided
in this document.
12.2 Control Of Plan Assets The assets of the Fund or evidence of ownership
shall be held by the Trustee/Custodian under the terms of the Plan and
Trust/Custodial Account. If the assets represent amounts transferred from
another trustee/custodian under a former plan, the Trustee/Custodian named
hereunder shall not be responsible for the propriety of any investment under the
former plan.
12.3 Exclusive Benefit Rules No part of the Fund shall be used for, or diverted
to, purposes other than for the exclusive benefit of Participants, former
participants with a vested interest, and the beneficiary or beneficiaries of
deceased Participants having a vested interest in the Fund at death.
12.4 Assignment And Alienation Of Benefits No right or claim to, or interest
in, any part of the Fund, or any payment from the Fund, shall be assignable,
transferable, or subject to sale, mortgage, pledge, hypothecation, commutation,
anticipation, garnishment, attachment, execution, or levy of any kind. The
Trustee/Custodian shall not recognize any attempt to assign, transfer, sell,
mortgage, pledge, hypothecate, commute, or anticipate the same, except to the
extent required by law. The preceding sentences shall also apply to the
creation, assignment, or recognition of a right to any benefit payable with
respect to a Participant pursuant to a domestic relations order, unless such
order is determined to be a qualified domestic relations order, as defined in
Code Section 414(p), or any domestic relations order entered before January 1,
1985 which the Plan attorney and Plan Administrator deem to be qualified.
12.5 Determination Of Qualified Domestic Relations Order (QDRO) A Domestic
Relations Order shall specifically state all of the following in order to be
deemed a Qualified Domestic Relations Order ("QDRO"):
(a) The name and last known mailing address (if any) of the
Participant and of each alternate payee covered by the QDRO.
However, if the QDRO does not specify the current mailing address
of the alternate payee, but the Plan Administrator has
independent knowledge of that address, the QDRO will still be valid.
(b) The dollar amount or percentage of the Participant's benefit to be
paid by the Plan to each alternate payee, or the manner in which
the amount or percentage will be determined.
(c) The number of payments or period for which the order applies.
(d) The specific plan (by name) to which the Domestic Relations
Order applies.
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The Domestic Relations Order shall not be deemed a QDRO if it requires the
Plan to provide:
(e) any type or form of benefit, or any option not already provided
for in the Plan;
(f) increased benefits, or benefits in excess of the Participant's
vested rights;
(g) payment of a benefit earlier than allowed by the Plan's earliest
retirement provisions or in the case of a profit-sharing plan,
prior to the allowability of in-service withdrawals, or
(h) payment of benefits to an alternate payee which are required to
be paid to another alternate payee under another QDRO.
Promptly, upon receipt of a Domestic Relations Order ("Order") which may or
may not be "Qualified", the Plan Administrator shall notify the Participant
and any alternate payee(s) named in the Order of such receipt, and include
a copy of this paragraph 12.5. The Plan Administrator shall then forward
the Order to the Plan's legal counsel for an opinion as to whether or not
the Order is in fact "Qualified" as defined in Code Section 414(p). Within
a reasonable time after receipt of the Order, not to exceed 60 days, the
Plan's legal counsel shall make a determination as to its "Qualified"
status and the Participant and any alternate payee(s) shall be promptly
notified in writing of the determination.
If the "Qualified" status of the Order is in question, there will be a
delay in any payout to any payee including the Participant, until the
status is resolved. In such event, the Plan Administrator shall segregate
the amount that would have been payable to the alternate payee(s) if the
Order had been deemed a QDRO. If the Order is not Qualified, or the status
is not resolved (for example, it has been sent back to the Court for
clarification or modification) within 18 months beginning with the date
the first payment would have to be made under the Order, The Plan
Administrator shall pay the segregated amounts plus interest to the
person(s) who would have been entitled to the benefits had there been no
Order. If a determination as to the Qualified status of the Order is made
after the 18-month period described above, then the Order shall only be
applied on a prospective basis. If the Order is determined to be a QDRO,
the Participant and alternate payee(s) shall again be notified promptly
after such determination. Once an Order is deemed a QDRO, the Plan
Administrator shall pay to the alternate payee(s) all amounts due under the
QDRO, including segregated amounts plus interest which may have accrued
during a dispute as to the Order's qualification.
Unless specified otherwise in the Adoption Agreement, the earliest
retirement age with regard to the Participant against whom the Order is
entered shall be the date the order is determined to be qualified. This
will only allow payouts to alternate payee(s) and not the Participant.
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ARTICLE XIII
INVESTMENTS
13.1 Fiduciary Standards The Trustee/Custodian shall invest and reinvest
principal and income in the same Fund in accordance with the investment
objectives established by the Employer, provided that:
(a) such investments are prudent under the Employee Retirement Income
Security Act of 1974 and the regulations thereunder,
(b) such investments are sufficiently diversified or otherwise insured or
guaranteed to minimize the risk of large losses, and
(c) such investments are similar to those which would be purchased by
another professional money manager for a like plan with similar
investment objectives.
13.2 Funding Arrangement The Employer shall, in the Adoption Agreement, appoint
the Sponsor or an individual or individuals to serve as Trustee of the Fund. If
the Sponsor is not named Trustee, the Sponsor will serve as Custodian under the
Plan as provided at paragraph 13.4 herein.
13.3 Investment Alternatives Of The Trustee As Trustee, the Sponsor shall
implement an investment program based on the Employer's investment objectives
and the Employee Retirement Income Security Act of 1974. In addition to powers
given by law, the Trustee may:
(a) invest the Fund in any form of property, including common and preferred
stocks, exchange traded put and call options, bonds, money market
instruments, mutual funds (including funds for which the Trustee or its
affiliates serve as investment advisor), savings accounts, certificates
of deposit, Treasury bills, insurance policies and contracts or in any
other property, real or personal, having a ready market. The Trustee
may invest in time deposits (including, if applicable, its own or those
of affiliates) which bear a reasonable interest rate. No portion of any
Qualified Voluntary Contribution, or the earnings thereon, may be
invested in life insurance contracts or, as with any Participant-
directed investment, in tangible personal property characterized by the
IRS as a collectible.
(b) transfer any assets of the Fund to a group or collective trust
established to permit the pooling of funds of separate pension and
profit-sharing trusts, provided the Internal Revenue Service has ruled
such group or collective trust to be qualified under Code Section
401(a) and exempt under Code Section 501(a) (or the applicable
corresponding provisions of any other Revenue Act) or to any other
common, collective, or commingled trust fund which has been or may
hereafter be established and maintained
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by the Trustee and/or affiliates of the Trustee. Such commingling of
assets of the Fund with assets of other qualified trusts is
specifically authorized, and to the extent of the investment of the
Fund in such a group or collective trust, the terms of the instrument
establishing the group or collective trust shall be a part hereof as
though set forth herein,
(c) invest up to 100% of the Fund in the common stock, debt obligations, or
any other security issued by the Employer or by an affiliate of the
Employer within the limitations provided under Sections 406, 407, and
408 of the Employee Retirement Income Security Act of 1974 and further
provided that such investment does not constitute a prohibited
transaction under Code Section 4975. Any such investment in Employer
securities shall only be made upon written direction of the Employer
who shall be solely responsible for propriety of such investment,
(d) hold cash uninvested and deposit same with any banking or savings
institution, including its own banking department,
(e) join in or oppose the reorganization, recapitalization, consolidation,
sale or merger of corporations or properties, including those in which
it is interested as Trustee, upon such terms as it deems wise,
(f) hold investments in nominee or bearer form,
(g) vote proxies and, if appropriate, pass them on to any investment
manager which may have directed the investment in the equity giving
rise to the proxy,
(h) exercise all ownership rights with respect to assets held in the Fund.
13.4 Duties Of The Custodian As Custodian, the Sponsor shall be depository of
all or part of the Fund and shall, at the direction of the Trustee hold any
assets received from the Trustee or it agents. The Custodian shall receive and
deliver assets as instructed by the Trustee or its agents. To the extent that
the Custodian holds title to Plan assets and such ownership requires action on
the part of the registered owner, such action will be taken by the Custodian
only upon receipt of specific instructions from the Trustee or its agents.
Proxies shall be voted by or pursuant to the express direction of the Trustee or
authorized agent of the Trustee. As Custodian, the Sponsor shall not give any
investment advice, including any opinion on the prudence of directed
investments. The Employer and Trustee and the agents thereof assume all
responsibility for adherence to fiduciary standards under the Employee
Retirement Income Security Act of 1974 (ERISA) and all amendments thereof, and
regulations thereunder.
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13.5 Participant Loans If agreed upon by the Trustee and permitted by the
Employer in the Adoption Agreement, a Plan Participant may make application to
the Employer requesting a loan from the Fund. The Employer shall have the sole
right to approve or disapprove a Participant's application provided that loans
shall be made available to all participants on a reasonably equivalent basis.
Loans shall not be made available to Highly Compensated Employees [as defined in
Code Section 414(q)] in an amount greater than the amount made available to
other Employees. Any loan granted under the Plan shall be made subject to the
following rules:
(a) No loan, when aggregated with any outstanding Participant loan(s),
shall exceed the lesser of (i) $50,000 reduced by the excess, if any,
of the highest outstanding balance of loans during the one year period
ending on the day before the loan is made, over the outstanding balance
of loans from the Plan on the date the loan is made or (ii) one-half of
the fair market value of a Participant's Vested Account Balance built
up from Employer Contributions, Voluntary Contributions, and Rollover
Contributions. If the Participant's Vested Account Balance is $20,000
or less, the maximum loan shall not exceed the lesser of $10,000 or
100% of the Participant's Vested Account Balance. For the purpose of
the above limitation, all loans from all plans of the Employer and
other members of a group of employers described in Code Sections
414(b), 414(c), and 414(m) are aggregated. An assignment or pledge of
any portion of the Participant's interest in the Plan and a loan,
pledge, or assignment with respect to any insurance contract purchased
under the Plan, will be treated as a loan under this paragraph.
(b) All applications must be made on forms provided by the Employer
and must be signed by the Participant.
(c) Any loan shall bear interest at a rate reasonable at the time of
application, considering the purpose of the loan and the rate being
charged by representative commercial banks in the local area for a
similar loan unless the Employer sets forth a different method for
determining loan interest rates in its loan procedures. The loan
agreement shall also provide that the payment of principal and interest
be amortized in level payments not less than quarterly.
(d) The term of such loan shall not exceed five years except in the case of
a loan for the purpose of acquiring any house, apartment, condominium,
or mobile home (not used on a transient basis) which is used or is to
be used within a reasonable time as the principal residence of the
Participant. The term of such loan shall be determined by the Employer
considering the maturity dates quoted by representative commercial
banks in the local area for a similar loan.
(e) The principal and interest paid by a Participant on his or her loan
shall be credited to the Fund in the same manner as for any other Plan
investment. If elected in the Adoption Agreement, loans may be treated
as segregated investments of the individual Participants. This
provision is not available if its election will result in
discrimination in operation of the Plan.
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(f) If a Participant's loan application is approved by the Employer, such
Participant shall be required to sign a note, loan agreement, and
assignment of 50% of his or her interest in the Fund as collateral for
the loan. The Participant, except in the case of a profit-sharing plan
satisfying the requirements of paragraph 8.7 must obtain the consent of
his or her Spouse, if any, within the 90 day period before the time his
or her account balance is used as security for the loan. A new consent
is required if the account balance is used for any renegotiation,
extension, renewal or other revision of the loan, including an increase
in the amount thereof. The consent must be written, must acknowledge
the effect of the loan, and must be witnessed by a plan representative
or notary public. Such consent shall subsequently be binding with
respect to the consenting Spouse or any subsequent Spouse.
(g) If a valid Spousal consent has been obtained, then, notwithstanding any
other provision of this Plan, the portion of the Participant's Vested
Account Balance used as a security interest held by the Plan by reason
of a loan outstanding to the Participant shall be taken into account
for purposes of determining the amount of the account balance payable
at the time of death or distribution, but only if the reduction is used
as repayment of the loan. If less that 100% of the Participant's
Vested Account Balance (determined without regard to the preceding
sentence) is payable to the Surviving Spouse, then the account balance
shall be adjusted by first reducing the Vested Account Balance by the
amount of the security used as repayment of the loan, and then
determining the benefit payable to the Surviving Spouse.
(h) The Employer may also require additional collateral in order to
adequately secure the loan.
(i) A Participant's loan shall immediately become due and payable if such
Participant terminates employment for any reason or fails to make a
principal and/or interest payment as provided in the loan agreement. If
such Participant terminates employment, the Employer shall immediately
request payment of principal and interest on the loan. If the
Participant refuses payment following termination, the Employer shall
reduce the Participant's Vested Account Balance by the remaining
principal and interest on his or her loan. If the Participant's Vested
Account Balance is less than the amount due, the employer shall take
whatever steps are necessary to collect the balance due directly from
the Participant. However, no foreclosure on the Participant's note or
attachment of the Participant's account balance will occur until a
distributable event occurs in the Plan.
(j) No loans will be made to Owner-Employees (as defined in paragraph 1.51)
or Shareholder-Employees (as defined in paragraph 1.74), unless the
Employer obtains a prohibited transaction exemption from the Department
of Labor.
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13.6 Insurance Policies If agreed upon by the Trustee and permitted by the
Employer in the Adoption Agreement, Employees may elect the purchase of life
insurance policies under the Plan. If elected, the maximum annual premium for
a whole life policy shall not exceed 50% of the aggregate Employer contributions
allocated to the account of a Participant. For profit-sharing plans the 50%
test need only be applied against Employer contributions allocated in the last
two years. Whole life policies are policies with both nondecreasing death
benefits and nonincreasing premiums. The maximum annual premium for term
contracts or universal life policies and all other policies which are not whole
life shall not exceed 25% of aggregate Employer contributions allocated to the
account of a Participant. The two-year rule for profit-sharing plans again
applies. The maximum annual premiums for a Participant with both a whole life
and a term contract or universal life policies shall be limited to one-half of
the whole life premium plus the term premium, but shall not exceed 25% of the
aggregate Employer contributions allocated to the account of a Participant,
subject to the two year rule for profit-sharing plans. Any policies purchased
under this Plan shall be held subject to the following rules:
(a) The Trustee shall be applicant and owner of any policies issued.
(b) All policies or contracts purchased hereunder, shall be endorsed as
nontransferable, and must provide that proceeds will be payable to the
Trustee; however, the Trustee shall be required to pay over all
proceeds of the contracts to the Participant's Designated Beneficiary
in accordance with the distribution provisions of this Plan. Under no
circumstances shall the Trust retain any part of the proceeds.
(c) Each Participant shall be entitled to designate a beneficiary under the
terms of any contract issued; however, such designation will be given
to the Trustee which must be the named beneficiary on any policy. Such
designation shall remain in force, until revoked by the Participant, by
filing a new beneficiary form with the Trustee. A Participant's Spouse
will be the Designated Beneficiary of the proceeds in all circumstances
unless a Qualified Election has been made in accordance with paragraph
8.4. The beneficiary of a deceased Participant shall receive, in
addition to the proceeds of the Participant's policy or policies, the
amount credited to such Participant's investment account.
(d) A Participant who is uninsurable or insurable at substandard rates, may
elect to receive a reduced amount of insurance, if available, or may
waive the purchase of any insurance.
(e) All dividends or other returns received on any policy purchased shall
be applied to reduce the next premium due on such policy, or if no
further premium is due, such amount shall be credited to the Fund as
part of the account of the Participant for whom the policy is held.
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(f) If Employer contributions are inadequate to pay all premiums on all
insurance policies, the Trustee may, at the option of the Employer,
utilize other amounts remaining in each Participant's account to pay
the premiums on his or her respective policy or policies, allow the
policies to lapse, reduce the policies to a level at which they may be
maintained, or borrow against the policies on a prorated basis,
provided that the borrowing does not discriminate in favor of the
policies on the lives of Officers, Shareholders, and highly compensated
Employees.
(g) On retirement or termination of employment of a Participant, the
Employer shall direct the Trustee to cash surrender the Participant's
policy and credit the proceeds to his or her account for distribution
under the terms of the Plan. However, before so doing, the Trustee
shall first offer to transfer ownership of the policy to the
Participant in exchange for payment by the Participant of the cash
value of the policy at the time of transfer. Such payment shall be
credited to the Participant's account for distribution under the terms
of the Plan. All distributions resulting from the application of this
paragraph shall be subject to the Joint and Survivor Annuity Rules of
Article VIII, if applicable.
(h) The Employer shall be solely responsible to see that these insurance
provisions are administered properly and that if there is any conflict
between the provisions of this Plan and any insurance contracts issued
that the terms of this Plan will control.
13.7 Employer Investment Direction If agreed upon by the Trustee and approved
by the Employer in the Adoption Agreement, the Employer shall have the right to
direct the Trustee with respect to investments of the fund, may appoint an
investment manager (registered as an investment advisor under the Investment
Advisors Act of 1940) to direct investments, or may give the Trustee sole
investment management responsibility. The Employer may purchase and sell
interests in a registered investment company (i.e., mutual funds) for which the
Sponsor, its parent, affiliates, or successors, may serve as investment advisor
and receive compensation from the registered investment company for its services
as investment advisor. The Employer shall advise the Trustee in writing
regarding the retention of investment powers, the appointment of an investment
manager, or the delegation of investment powers to the Trustee. Any investment
directive under this Plan shall be made in writing by the Employer or investment
manager, as the case may be. In the absence of such written directive, the
Trustee shall automatically invest the available cash in its discretion in an
appropriate interim investment until specific investment directions are
received. Such instructions regarding the delegation of investment
responsibility shall remain in force until revoked or amended in writing. The
Trustee shall not be responsible for the propriety of any directed investment
made and shall not be required to consult with or advise the Employer regarding
the investment quality of any directed investment held hereunder. If the
Employer fails to designate an investment manager, the Trustee shall have full
investment authority. If the Employer does not issue investment directions, the
Trustee shall have authority to invest the Fund in its sole discretion. While
the Employer may direct the Trustee with respect to Plan investments, the
Employer may not:
(a) borrow from the Fund or pledge any of the assets of the Fund as
security for a loan,
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(b) buy property or assets from or sell property or assets to the Fund,
(c) charge any fee for services rendered to the Fund, or
(d) receive any services from the Fund on a preferential basis.
13.8 Employee Investment Direction If agreed to by the trustee and approved by
the Employer in the Adoption Agreement, Participants shall be given the option
to direct the investment of their personal contributions and their share of the
Employer's contribution among alternative investment funds established as part
of the overall Fund. Unless otherwise specified by the Employer in the Adoption
Agreement, such investment funds shall be restricted to funds offered by the
Trustee. In this connection, a Participant's right to direct the investment of
any contribution shall apply only to selection of the desired fund. The
following rules shall apply to the administration of such funds.
(a) At the time an Employee becomes eligible for the Plan, he or she shall
complete an investment designation form stating the percentage of his
or her contributions to be invested in the available funds.
(b) A Participant may change his or her election with respect to future
contributions by filing a new investment designation form with the
Employer in accordance with the procedures established by the Plan
Administrators.
(c) A Participant may elect to transfer all or part of his or her balance
from one investment fund to another by filing an investment designation
form with the Employer in accordance with the procedures established by
the Plan Administrators.
(d) The Employer shall be responsible when transmitting Employee and
Employer contributions to show the dollar amount to be credited to each
investment fund for each Employee.
(e) Except as otherwise provided in the Plan, neither the Trustee, nor the
Employer, nor any fiduciary of the Plan shall be liable to the
Participant or any of his or her beneficiaries for any loss resulting
from action taken at the direction of the Participant.
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ARTICLE XIV
TOP-HEAVY PROVISIONS
14.1 Applicability Of Rules If the Plan is or becomes Top-Heavy in any Plan
Year beginning after 1983, the provisions of this Article will supersede
any conflicting provisions in the Plan or Adoption Agreement.
14.2 Minimum Contribution Notwithstanding any other provision in the
Employer's Plan, for any Plan Year in which the Plan is Top-Heavy or Super Top-
Heavy, the aggregate Employer contributions and forfeitures allocated on behalf
of any Participant (without regard to any Social Security contribution) under
this Plan and any other Defined Contribution Plan of the Employer shall be
lesser of 3% of such Participant's Compensation or the largest percentage of
Employer contributions and forfeitures, as a percentage of the first $200,000,
as adjusted under Code Section 415(d), of the Key Employee's Compensation,
allocated on behalf of any Key Employee for that year.
Each Participant who is employed by the Employer on the last day of the Plan
Year shall be entitled to receive an allocation of the Employer's minimum
contribution for such Plan Year. The minimum allocation applies even though
under other Plan provisions the Participant would not otherwise be entitled to
receive an allocation, or would have received a lesser allocation for the year
because the Participant fails to make Mandatory Contributions to the Plan, the
Participant's Compensation is less than a stated amount, or the Participant
fails to complete 1,000 Hours of Service (or such lesser number designated by
the Employer in the Adoption Agreement) during the Plan Year. A Paired profit-
sharing plan designated to provide the minimum Top-Heavy contribution must do
so regardless of profits. An Employer may make the minimum Top-Heavy
contribution available to all Participants or just non-Key Employees.
For purposes of computing the minimum allocation, Compensation shall mean
Compensation as defined in the second paragraph of paragraph 1.12 of the Plan.
The Top-Heavy minimum contribution does not apply to any Participant to the
extent the Participant is covered under any other plan(s) of the Employer and
the Employer has provided in Section 11 of the Adoption Agreement that the
minimum allocation or benefit requirements applicable to Top-Heavy Plans will be
met in the other plan(s).
If a Key Employee makes an Elective Deferral or has an allocation of Matching
Contributions made to his or her account, a Top-Heavy minimum will be required
for non-Key Employees who are Participants, however, neither Elective Deferrals
by nor Matching Contributions to non-Key Employees may be taken into account
for purposes of satisfying the top-heavy Minimum Contribution requirement.
14.3 Minimum Vesting For any Plan Year in which this Plan is Top-Heavy, the
minimum vesting schedule elected by the Employer in the Adoption Agreement will
automatically apply to the Plan. If the vesting schedule selected by the
Employer in the Adoption Agreement is less liberal than the allowable schedule,
the schedule will automatically be modified. If the vesting schedule under the
Employer's Plan shifts in or out of the Top-Heavy schedule for any Plan Year,
such shift is an amendment to the vesting schedule and the election in paragraph
9.8 of the Plan applies. The minimum vesting schedule applies to all accrued
benefits within the meaning of Code Section 411(a)(7) except those attributable
to Employee contributions, including benefits accrued before the effective date
of Code Section 416 and benefits accrued
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before the Plan became Top-Heavy. Further, no reduction in vested benefits may
occur in the event the Plan's status as Top-Heavy changes for any Plan Year.
However, this paragraph does not apply to the account balances of any Employee
who does not have an Hour of Service after the Plan initially becomes Top-Heavy
and such Employee's account balance attributable to Employer contributions and
forfeitures will be determined without regard to this paragraph.
14.4 Limitations On Allocations In any Plan Year in which the Top-Heavy
Ratio exceeds 90% (i.e., the Plan becomes Super Top-Heavy), the denominators of
the Defined Benefit Fraction (as defined in paragraph 1.16) and Defined
Contribution Fraction (as defined in paragraph 1.19) shall be computed using
100% of the dollar limitation instead of 125%.
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ARTICLE XV
AMENDMENT AND TERMINATION
15.1 Amendment By Sponsor The Sponsor may amend any or all provisions of this
Plan and Trust/Custodial Account at any time without obtaining the approval or
consent of any Employer which has adopted this Plan and Trust/Custodial Account
provided that no amendment shall authorize or permit any part of the corpus or
income of the Fund to be used for or diverted to purposes other than for the
exclusive benefit of Participants and their beneficiaries, or eliminate an
optional form of distribution. In the case of a mass-submitted plan, the
mass-submitter shall amend the Plan on behalf of the Sponsor.
15.2 Amendment By Employer The Employer may amend any option in the Adoption
Agreement, and may include language as permitted in the Adoption Agreement,
(a) to satisfy Code Section 415, or
(b) to avoid duplication of minimums under Code Section 416 because of
the required aggregation of multiple plans.
The Employer may add certain model amendments published by the Internal Revenue
Service which specifically provide that their adoption will not cause the Plan
to be treated as an individually designed plan for which the Employer must
obtain a separate determination letter.
If the Employer amends the Plan and Trust/Custodial Account other than as
provided above, the Employer's Plan shall no longer participate in this
Prototype Plan and will be considered an individually designed plan.
15.3 Termination Employers shall have the right to terminate their Plans upon
60 days notice in writing to the Trustee/Custodian. If the Plan is
terminated, partially terminated, or if there is a complete discontinuance of
contributions under a profit-sharing plan maintained by the Employer, all
amounts credited to the accounts of Participants shall vest and become
nonforfeitable. In the event of a partial termination, only those who are
affected by such partial termination shall be fully vested. In the event of
termination, the Employer shall direct the Trustee/Custodian with respect to the
distribution of accounts to or for the exclusive benefit of Participants or
their beneficiaries. The Trustee/Custodian shall dispose of the Fund in
accordance with the written directions of the Plan Administrator, provided that
no liquidation of assets and payment of benefits, (or provision therefor), shall
actually be made by the Trustee/Custodian until after it is established by the
Employer in a manner satisfactory to the Trustee/Custodian, that the applicable
requirements, if any, of the Employee Retirement Income Security Act of 1974 and
the Internal Revenue Code governing the termination of employee benefit plans,
have been or are being, complied with, or that appropriate authorizations,
waivers, exemptions, or variances have been, or are being obtained.
15.4 Qualification Of Employer's Plan If the adopting Employer fails to
attain or retain Internal Revenue Service qualification, such Employer's Plan
shall no longer participate in this Prototype Plan and will be considered an
individually designed plan.
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15.5 Mergers And Consolidations
(a) In the case of any merger or consolidation of the Employer's Plan
with, or transfer of assets or liabilities of the Employer's Plan to,
any other plan, Participants in the Employer's Plan shall be entitled
to receive benefits immediately after the merger, consolidation, or
transfer which are equal to or greater than the benefits they would
have been entitled to receive immediately before the merger,
consolidation, or transfer if the Plan had then terminated.
(b) Any corporation into which the Trustee/Custodian or any successor
trustee/custodian may be merged or with which it may be consolidated,
or any corporation resulting from any merger or consolidation to
which the Trustee/Custodian or any successor trustee/custodian may be
a party, or any corporation to which all or substantially all the
trust business of the Trustee/Custodian or any successor
trustee/custodian may be transferred, shall be the successor of such
Trustee/Custodian without the filing of any instrument or performance
of any further act, before any court.
15.6 Resignation And Removal The Trustee/Custodian may resign by written
notice to the Employer which shall be effective 60 days after delivery. The
Employer may discontinue its participation in this Prototype Plan and
Trust/Custodial Account effective upon 60 days written notice to the Sponsor.
In such event the Employer shall, prior to the effective date thereof, amend the
Plan to eliminate any reference to this Prototype Plan and Trust/Custodial
Account and appoint a successor trustee or custodian or arrange for another
funding agent. The Trustee/Custodian shall deliver the Fund to its successor on
the effective date of the resignation or removal, or as soon thereafter as
practicable, provided that this shall not waive any lien the Trustee/Custodian
may have upon the Fund for its compensation or expenses. If the Employer fails
to amend the Plan and appoint a successor trustee, custodian, or other funding
agent within the said 60 days, or such longer period as the Trustee/Custodian
may specify in writing, the Plan shall be deemed individually designed and the
Employer shall be deemed the successor trustee/custodian. The Employer must
then obtain its own determination letter.
15.7 Qualification Of Prototype The Sponsor intends that this Prototype Plan
will meet the requirements of the Code as a qualified Prototype Retirement Plan
and Trust/Custodial Account. Should the Commissioner of Internal Revenue or
any delegate of the Commissioner at any time determine that the Plan and
Trust/Custodial Account fails to meet the requirements of the Code, the Sponsor
will amend the Plan and Trust/Custodial Account to maintain its qualified
status.
76
<PAGE>
ARTICLE XVI
GOVERNING LAW
Construction, validity and administration of the Protoype Plan and
Trust/Custodial Account, and any Employer Plan and Trust/Custodial Account as
embodied in the Prototype document and accompanying Adoption Agreement, shall be
governed by Federal law to the extent applicable and to the extent not
applicable by the laws of the State/Commonwealth in which the principal office
of the Sponsor is located.
77
<PAGE>
MODEL AMENDMENT
Revenue Procedure 93-12
Eligible rollover distribution: An eligible rollover distribution is any
distribution of all any portion of the balance to the credit of the distributee,
except that an eligible rollover distribution does not include: any
distribution that is one of a series of substantially equal periodic payments
(not less frequently than annually) made for the life (or life expectancy) of
the distributee of the joint lives (or joint life expectancies) of the
distributee and the distributee's designated beneficiary, or for a specified
period of ten years or more; any distribution to the extent such distribution is
required under section 401(a)(9) of the Code; and the portion of any
distribution that is not includible in gross income (determined without regard
to the exclusion for net unrealized appreciation with respect to employer
securities).
Eligible retirement plan: An eligible retirement plan is an individual
retirement account described in section 408(a) of the Code, an individual
retirement annuity plan described in section 401(a) of the Code, or a qualified
trust described in section 401(a) of the Code, that accepts the distributee's
eligible rollover distribution. However, in the case of an eligible rollover
distribution to the surviving spouse, an eligible retirement plan is an
individual retirement account or individual retirement annuity.
Distributee: A distributee includes an employee or former employee. In additon,
the employee's or former employee's surviving spouse and the employee's or
former employee's spouse who is the alternate payee under a qualified domestic
relations order, as defined in section 414(p) of the Code, are distributees with
regard to the interest of the spouse or former spouse.
Direct rollover: A direct rollover is a payment by the Plan to the eligible
retirement plan specified by the distributee.
<PAGE>
MODEL AMENDMENT
Revenue Procedure 93-47
(This model amendment allows Participants receiving distribution from
safe-harbored profit sharing plans to waive the 30-day period required under the
Unemployment Compensation Act of 1992. Non-safe harbored plans must still
provide notice not less than 30 days and not more than 90 days prior to the
distribution.)
If a distribution is one to which Section 401 (a)(11) and 417 of the Internal
Revenue Code do not apply, such distribution may commence less than 30 days
after the notice required under Section 1.411(a)-11(c) of the Income Tax
Regulations is given provided that:
(1) the plan administrator clearly informs the Participant that the
Participant has a right to a period of at least 30 days after
receiving the notice to consider the decision of whether or not to
elect a distribution (and, if applicable, a particular distribution
option), and
(2) the Participant, after receiving the notice, affirmatively elects a
distribution.
<PAGE>
PART I - SECTION 401(a)(17) LIMITATION
[MAY BE ADOPTED BY DEFINED CONTRIBUTION
AND DEFINED BENEFIT PLANS]
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for Plan Years
beginning on or after January 1, 1994, the annual Compensation of each Employee
taken into account under the Plan shall not exceed the OBRA '93 annual
compensation limit. The OBRA '93 annual compensation limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with Section 401(a)(17)(B) of the Internal Revenue Code. The cost-of-living in
effect for a calendar year applies to any period, not exceeding 12 months, over
which Compensation is determined (determination period) beginning in such
calendar year. If a determination period consists of fewer than 12 months, the
OBRA '93 annual compensation limit will be multiplied by a fraction, the
numerator of which is the number of months in the determination period, and the
denominator of which is 12.
For Plan Years beginning on or after January 1, 1994, any reference in this
Plan to the limitation under Section 401(a)(17) of the Code shall mean the OBRA
'93 annual compensation limit set forth in this provision.
If Compensation for any prior determination period is taken into account in
determining an Employee's benefits accruing in the current Plan Year, the
Compensation for that prior determination period is subject to the OBRA '93
annual compensation limit in effect for that prior determination period. For
this purpose, for determination periods beginning before the first day of the
first Plan Year beginning on or after January 1, 1994, the OBRA '93 annual
compensation limit is $150,000.
<PAGE>
LEASE - "SCHEDULE"
<TABLE>
<CAPTION>
I. Names and Addresses of Parties.
<S> <C>
A. Landlord CENTOCOR PROPERTY MANAGEMENT CORP. II,
a Delaware corporation
B. Landlord's Address 200 Great Valley Parkway
Malvern, PA 19355
Attention: Corporate Secretary
C. Tenant ViroPharma, Incorporated
a Delaware corporation
D. Doing Business as Same as C. above
E. Tenant's Address 1250 S. Collegeville Road
P.O. Box 5000
Collegeville, PA 19426
<CAPTION>
II. Premises.
<S> <C>
A. Suite Number 74 and 76 Great Valley Parkway (together, Areas 2A
and 2B as depicted on Exhibit "A" attached to this
Lease)
B. Name and Address of Building 40-84 Great Valley Parkway (Bldg. #5)
East Whiteland Township
Chester County, Pennsylvania
C. Rentable Area of Premises Area 2A: 8,683 Sq. Ft.
Area 2B: 8.161 Sq. Ft.
D. Rentable Area of Building 84,759 Square Feet
<CAPTION>
III. Length of Term.
<S> <C>
A. Term Two (2) years (with a right to extend for additional one
(1) year)
B. Commencement Date October 1, 1995
C. Expiration Date September 30, 1997, subject to a one (1) year
extension in accordance with the terms of paragraph
2(b).
</TABLE>
-i-
<PAGE>
IV. Minimum Rent.
A. Tenant shall pay to Landlord a guaranteed minimum rent (the "Minimum
Rent") for each of the following periods during the Term, as follows:
Time Period Installment Due Date
----------- ----------- --------
10/1/95-9/30/96 $13,685.75 1st of each month
10/1/96-9/30/97 $14,387.59 1st of each month
B. If the term of this Lease shall be extended for a third year in
accordance with the terms of paragraph 2(b), the Minimum Rent for the one (1)
year extension shall be the following:
10/1/97-9/30/98 $15,089.42 1st of each month
V. Use of Premises.
Subject to the provisions this Lease, Tenant shall use the Premises
solely for the purpose of conducting the business of: office and laboratories
for pharmaceutical business.
VI. Additional Rent.
A. In addition to the Minimum Rent, Tenant shall pay the following
Operating Cost Allocation as Additional Rent:
Time Period Installment Due Date
----------- ----------- --------
10/1/95-9/30/96 $3,186.34 1st of each month
10/1/96-9/30/97 $3,284.59 1st of each month
B. If the term of this Lease shall be extended for a third year in
accordance with the terms of paragraph 2(b), the Minimum Rent for the one (1)
year extension shall be the following:
10/1/97-9/30/98 $3,382.84 1st of each month
VII. Security Deposit.
Tenant, contemporaneously with the execution of this Lease, has
deposited as security with Landlord the sum of Thirty Thousand and 00/100
Dollars ($30,000.00).
VIII. Broker.
No party has acted as a broker in connection with this Lease.
IX. Exhibits and Addenda.
The following exhibits and addenda are attached hereto and made a part
of this Lease and are true and correct in all material respects as of the date
of this Lease:
Exhibit "A" - Premises Plan
Exhibit "B" - Furniture Inventory
-ii-
<PAGE>
Exhibit "C" - Description of Existing HVAC equipment
THIS "SCHEDULE" AND THE "TERMS" WHICH ARE ATTACHED HERETO (INCLUDING ALL
EXHIBITS AND ADDENDA) CONSTITUTE THIS LEASE BETWEEN LANDLORD AND TENANT.
IN WITNESS WHEREOF the parties hereto, intending to be legally bound
hereby, have caused this Lease to be duly executed the 19 day of September,
-- ---------
1995.
-
LANDLORD: CENTOCOR PROPERTY MANAGEMENT CORP. II
Attest/
Witness: /S/ [SIGNATURE APPEARS HERE] By: /S/ [SIGNATURE APPEARS HERE]
--------------------------- ---------------------------
TENANT: VIROPHARMA INCORPORATED
Attest/
Witness: /S/ [SIGNATURE APPEARS HERE] By: /S/ [SIGNATURE APPEARS HERE]
--------------------------- ---------------------------
-iii-
<PAGE>
LEASE - TERMS
1. Premises. Landlord hereby leases to Tenant and Tenant hereby
--------
leases from Landlord the premises described in Part II.A. of the Schedule (the
"Premises") in the building identified in Part II.B. of the Schedule (the
"Building")(the Building and the land upon which it is situated are hereinafter
referred to as the "Property"), for the Term and subject to the covenants,
terms, provisions and conditions of this Lease.
2. Term.
----
(a) The Term and Tenant's obligation to pay rent and occupy the
Premises shall (a) commence on the Commencement Date set forth above in Part
III.B. of the Schedule and (b) end, without the necessity for notice from either
party to the other, at midnight on the Expiration Date set forth above in Part
III.C. of the Schedule.
(b) If Landlord shall have given to Tenant by December 1, 1996
notice that Landlord does not intend for Landlord or any affiliate of Landlord
to reoccupy the Premises during the period of one year after the end of the
current two year Term of this Lease, Tenant shall have the opportunity to extend
the Term of the Lease for an additional one (1) year provided the Tenant shall
have executed no later than January 1, 1997 an extension amendment to this Lease
which shall provide that all of the terms and conditions of the Lease shall
remain in effect during such one (1) year extension but the Minimum Rental and
Operating Cost Allocation as Additional Rent payable during such one (1) year
extension shall be as set forth in Part IV.B. and Part VI.B., respectively, of
the Schedule.
3. Rent.
----
(a) Tenant shall pay, without demand and without deduction or
setoff, to Landlord the monthly installment of Minimum Rent set forth above in
Part IV. of the Schedule on the first day of each calendar month during the
Term. If the Commencement Date shall fall on a day other than the first day of
a calendar month, the Minimum Rent shall be apportioned pro rata on a per diem
basis for the period between the Commencement Date and the first day of the
following calendar month and such apportioned sum shall be paid on the
Commencement Date.
(b) If Tenant fails to pay any Minimum Rent within ten (10)
days it is due and payable, Tenant shall pay a late payment charge equal to
five percent (5%) of such unpaid amount. This late payment charge is intended
as liquidated damages to compensate Landlord for its additional administrative
costs resulting from Tenant's late payment, and is agreed by Landlord and Tenant
to be a reasonable estimate of the additional administrative costs which
Landlord will occur as a result of such late payment. The collection of this
late payment charge will not constitute a waiver by Landlord of any default by
Tenant under this Lease or preclude Landlord's exercise of all or any of
Landlord's remedies after such default.
4. Additional Rent.
---------------
(a) The following terms shall have the meanings set forth
below:
(i) "Additional Rent" means all of the sums payable by
Tenant under this paragraph and all other sums payable by Tenant elsewhere under
this Lease, whether or not the same are expressly designated as additional rent.
<PAGE>
(ii) The term "Operating Costs" shall mean the costs to
Landlord, determined by Landlord of operating and maintaining the Building
including without limitation: (A) charges for, and taxes on, the furnishing to
the Building of all water and sewer service, all electricity for common area and
exterior lighting; (B) costs of maintenance of the Building and Property,
security, landscaping and snow removal; (C) charges for governmental permits
required in connection with the operation of the Building; (D) wages, salaries
and benefits of employees of Landlord or of any management company (including an
affiliate of Landlord) to the extent they are employed in the management,
operation and maintenance of the Building; (E) premiums for hazard, rent,
liability, worker's compensation and other insurance maintained by Landlord for
the Building; (F) costs arising under service contracts for the Building; (G)
Real Estate Taxes (defined below); (H) legal fees, auditing fees and other
professional and consulting fees required in connection with the operation of
the Building (but not with respect to collections or disputes with tenants); (I)
costs of repair and maintenance of the Property; (J) management fees (whether
payable to a third-party management company, or an affiliate of Landlord) not to
exceed ten percent (10%) of gross rental income; (K) fees and assessments
payable to the Great Valley Owners Association pursuant to the Declaration of
Covenants applicable to the Property; and (L) the cost of all other items
(including, without limitation, replacements and improvements) which under
generally accepted accounting principles constitute operating or maintenance
costs which are allocable to the Building or any portion thereof. The term
"Operating Costs" shall not include: (A) depreciation (other than on personal
property and equipment); (B) interest and principal or other payments on any
encumbrances or indebtedness of Landlord; (C) ground rents; (D) costs actually
reimbursed through insurance proceeds to repair or replace damage by fire or
insured other casualty; (E) commissions payable to leasing brokers, any costs
relating to activities for the solicitation and execution of leases of space
within the Building; (F) expenditures for capital improvements (including lease
payments for capital improvements) except expenditures necessary to maintain the
Building in good order and condition, those incurred which reduce or are
intended to reduce Operating Costs, and capital expenditures required by law; in
which cases the cost thereof shall be included in Operating Costs to the extent
of the expected useful life as determined by Landlord in accordance with
generally accepted accounting principles applicable to the remainder of the
Term; (G) the cost of correcting defects in the construction of the Building or
in the Building equipment to the extent of any recovery by Landlord under
warranties; (H) any insurance premium to the extent that Landlord is reimbursed
(other than by payment of shares of Operating Costs) for it by Tenant under this
Lease or by any other tenant in the Building pursuant to its lease; (I) the cost
of any work or services performed or facilities furnished to any tenant of the
Building to a materially greater extent or in a manner materially more favorable
to such tenant than that performed for or furnished to Tenant; (J) the cost of
alterations of leased space in the Building; and (K) the cost of any utility
services included in Tenant Utility Costs (herein defined) or consumed by other
tenants within their respective demised premises.
(iii) "Operating Costs Allocation" means that amount
payable by Tenant as Additional Rent for Operating Costs which Landlord has
allocated to the Premises. For purposes of this Lease, the Landlord and Tenant
have agreed to fix the Operating Costs Allocation for the Term of this Lease at
the figures set forth in Part VI of the Schedule. In the event that Tenant shall
elect to extend the Term as provided in paragraph 2(c) above, the Operating
Costs Allocation shall be fixed by Landlord for such additional One (1) year at
a figure that is based upon Landlord's calculation of Landlord's anticipated
actual Operating Costs for such additional year, but no less than the Operating
Cost Allocation as was applicable in the last year of the two year Term.
(iv) "Real Estate Taxes" means all real estate taxes and
assessments, general or special, ordinary or extraordinary, foreseen or
unforeseen (other than any tax, assessment, levy or other charge (other than any
income tax) by any federal, state or local law now or hereafter imposed directly
or indirectly upon Landlord with respect to this Lease or the value thereof, or
upon Tenant's use or occupancy of the Premises or upon the Minimum Rent,
Additional Rent or any
-2-
<PAGE>
other sums payable under this Lease) assessed or imposed upon the Property and
any tax however designated, which may be levied or imposed in substitution, in
whole or in part, for any tax or in addition to or increase any tax which would
otherwise be included within the definition of Real Estate Taxes.
(b) With respect to electricity, water, natural gas, propane and/or
steam or any other fuel of energy furnished to the Premises or for equipment
supplying HVAC to the Premises, consumption shall be measured either by
Landlord's submeter or by the public utility of which Tenant is a metered
customer. If consumption is measured by a public utility of which Tenant is a
metered customer, then Tenant shall pay to such public utility the charges
therefor when due. If consumption is measured by Landlord's submeter then Tenant
shall pay to Landlord, within fifteen (15) days after receipt from Landlord of
each statement of the amount due, Tenant's share of Landlord's actual cost of
supplying such quantity of such forms of fuel or energy as is consumed by Tenant
("Tenant Utility Costs"). Tenant Utility Costs shall be determined by Landlord
solely on the basis of usage as shown on submeters installed at or for the
Premises. The calculation of the billing in said statement shall be determined
by Landlord (i) for electricity on the basis of the applicable PECO general
services rate as applied to Tenant's electricity consumption for the Premises;
(ii) for water on the basis of the rate charged to Landlord by the Philadelphia
Suburban Water Company; and (iii) for propane, natural gas or other utilities on
the basis of the average cost per unit per billing period charged to Landlord.
(c) Notwithstanding the other provisions of this paragraph 4, any
future expenditures made by Landlord for replacement of capital items (eg; roof,
parking lot, heating/air conditioning systems, etc.) shall be paid by Tenant as
Additional Rent (over and above any other Additional Rent payable under this
Lease) in a separate yearly billing sent by Landlord based upon a fixed ten (10)
year useful life of the replacement item and Tenant's share of the expenditure
shall be based on the ratio of the total number of rentable square feet of the
Premises as compared to the total number of rentable square feet of the portion
or portions of the Premises reasonably determined by Landlord to benefit from
such replacement.
5. Services.
--------
(a) Landlord agrees that, from and after the Commencement Date, it
shall provide or cause to be provided for the Tenant and the Premises only the
following services:
(i) Heat, ventilation and air-conditioning ("HVAC")
reasonably required for the comfortable occupation of the Premises during
Ordinary Business Hours (as herein defined), subject to the following: (A)
Landlord shall not be responsible for the failure of the heating or air-
conditioning system to provide heating or air-conditioning for comfortable
occupation of the Premises if such failure occurs to an area of the Premises and
results from that area being occupied by more persons than can be reasonably
accommodated by the equipment or that the combined electrical load of Tenant's
equipment and Tenant's lighting fixtures exceeds the General Load Capacity (as
herein defined); (B) Tenant agrees at all times to cooperate fully with Landlord
and to abide by all the regulations and requirements which Landlord may
prescribe for the proper functioning and protection of the heating and/or air-
conditioning system; and (C) the foregoing heating and air-conditioning services
shall be subject to any statute, ordinance, rule, regulation, resolution or
recommendation for energy conservation which may be promulgated by any
governmental agency or organization and which Landlord in good faith may elect
to abide by. Landlord is providing such HVAC services with existing equipment
more particularly described on Exhibit "C" which equipment Landlord shall
maintain during the Term. Landlord shall not be responsible to provide or
install any additional equipment to provide HVAC at levels greater than that
which can be provided by the equipment that presently exists in the Building.
-3-
<PAGE>
(ii) A reasonably sufficient quantity of
water for drinking, for lavatory and toilet fixtures (as applicable), for fire
sprinkler systems within the Building and for those laboratory fixtures that
exist in the Premises upon the execution of this Lease.
(iii) Maintenance of public areas of the
Property in clean condition and in good working order, and the sidewalks in good
repair and reasonably free from accumulations of snow and ice.
(iv) All necessary maintenance and repairs
(structural and non-structural) to the Building to keep the Building in good
order and condition, including repairs to the structural components of the
Premises, all repairs which may be needed to the mechanical, HVAC, electrical
and plumbing systems in and servicing the Premises (excluding repairs to any
supplemental and non-standard fixtures or other improvements installed or made
by or at the request of Tenant requiring maintenance of a type or nature not
customarily provided by Landlord to office lessees of the Property). Tenant
shall be obligated for all plate glass windows and doors of the Premises.
Except as expressly otherwise provided in this Lease or if caused by the gross
negligence or wilful misconduct of Landlord, its agents, contractors or
employees, Landlord is not responsible to provide any repairs or maintenance of
or to the Premises. Tenant shall be responsible for all interior maintenance
and repairs including, without limitation, plumbing, electrical, lighting, fire
protection, heating and air conditioning, air balancing and the heating only
make-up air unit for the chemical hoods by Tenant.
(vi) Electric energy for general light and
power use in the Premises, but in no event exceeding such wattage per square
foot of the Premises as determined by Landlord for basic lighting and electrical
outlets based upon the electrical distribution equipment, wiring and fixtures
installed in or for the Premises on the date this Lease is executed (the
"General Load Capacity"), in addition to the electric energy required by Tenant
for distribution of the Building's HVAC systems to the Premises and all propane
or natural gas and steam that serves as fuel for heat and any hot water supplied
to fixtures in the Premises, all subject to the following:
(A) Tenant shall permit Landlord to
install submeters in the Premises or elsewhere in the Building for the purpose
of measuring Tenant's consumption of electric energy in the Premises.
(B) With respect to light fixtures
in the Premises, Tenant at Tenant's expense shall furnish and install all
replacement fluorescent tubes, starters, lamps and ballasts required in the
Premises.
(C) Tenant's use of electric energy
in the Premises shall not at any time exceed the capacity of any of the
electrical conductors and equipment in or serving the Premises, which capacity
will be determined by Landlord for the Premises.
(b) Except with the prior express written approval of
Landlord, Tenant shall not install any equipment of any kind whatsoever which
might necessitate any changes, replacements or additions to any of the heating,
ventilating, air-conditioning, electric, water, sewer or other systems serving
the Premises or any other portion of the Property, or to any of the services
required of Landlord under this Lease. Tenant shall have the obligation to
provide its own phone and data systems equipment including, without limitation,
all wiring required therefor, and the Landlord's express written approval shall
be required prior to the installation thereof in the Premises. Tenant shall be
permitted to use existing telephone wiring on the Premises provided:
(i) Tenant shall first provide Landlord
with plans specifying how such wiring is to be used;
-4-
<PAGE>
(ii) Tenant shall be responsible for all
repair and maintenance of such wiring;
(iii) upon the expiration or earlier
termination of this Lease, Tenant (at Landlord's option) shall restore such
wiring, to the condition it was in on the Commencement Date;
(iv) Landlord has no responsibility or
obligation with respect to the condition or operation of such wiring and makes
no warranties in that regard; and
(v) the use by Tenant of such wiring shall
in no way interfere with Landlord or Landlord's use of any of its equipment or
the Property.
(c) As to any services provided by Landlord to the Premises
or Property, Landlord shall not be responsible or liable in any way for any
failure, defect in supply or character of, interruption or inadequacy in the
quantity or quality of the same where caused by war, civil commotion,
governmental restrictions or regulations, strikes, labor disturbances, inability
to obtain adequate supplies or materials, casualties, repairs, replacements, or
act or omission or requirement of the public utility serving the Property, or
any other cause beyond Landlord's actual control whether similar or dissimilar
to the foregoing.
6. Insurance.
---------
(a) Tenant, at Tenant's sole cost and expense, shall
maintain throughout the Term all of the following insurance:
(i) insurance against loss or damage to all
of Tenant's furniture, fixtures, equipment, machinery and any other personal
property now or thereafter located on the Premises by fire and such other
casualties as may be included in the forms of all-risk insurance from time to
time most commonly available, in an amount equal to the full insurable
replacement value of such property;
(ii) insurance on an occurrence basis
against claims for personal injury (including death) and property damage and
with broad form contractual liability coverage, under a policy or policies of
comprehensive general liability insurance or commercial general liability
insurance, with such limits as may be reasonably requested by Landlord from time
to time, but not less than $2,000,000 per occurrence; and
(iii) Worker's Compensation insurance
insuring against and satisfying Tenant's obligations and liabilities under the
worker's compensation laws of the state in which the Property is located.
Each policy shall have attached thereto an endorsement to the effect that no act
or omission of Tenant shall affect the obligation of the insurer to pay the full
amount of any loss sustained. Each policy shall be in such form as Landlord may
from time to time require. Tenant shall provide to Landlord proof of that
insurance which Tenant is obligated to maintain under this Lease and, upon
request of the Landlord, supply to Landlord a copy of the applicable insurance
policy or policies.
(b) Landlord shall maintain throughout the Term all of the
following insurance:
(i) Comprehensive general liability
insurance relating to the Property (including, without limitation, the common
areas); and
- 5 -
<PAGE>
(ii) Property insurance for the Property
written on a fire and extended coverage, or all-risk, basis.
The costs of the premiums for such insurance and of any endorsements thereto to
the extent allocable to the Property shall be part of Operating Costs.
(c) Each of the parties hereto hereby releases the other
and the other's partners agents and employees, to the extent of each party's
insurance coverage, from any and all liability for any loss or damage which may
be inflicted upon the property of such party even if such loss or damage shall
be brought about by the fault or negligence of the other party, its partners,
agents or employees; provided, however, that this release shall be effective
only with respect to loss or damage occurring during such time as the
appropriate policy of insurance shall contain a clause to the effect that this
release shall not affect said policy or the right of the insured to recover
thereunder. If any policy does not permit such a waiver, and if the party to
benefit therefrom requests that such a waiver be obtained, the other party
agrees to obtain an endorsement to its insurance policies permitting such waiver
of subrogation if it is commercially available and if such policies do not
provide therefor. If an additional premium is charged for such waiver, the
party benefiting therefrom, if it desires to have the waiver, agrees to pay to
the other the amount of such additional premium promptly upon being billed
therefor.
(d) Tenant may carry any insurance required by this Lease
under a blanket policy, applicable to the Premises for the risks and in the
amounts required pursuant to this paragraph, provided that all requirements of
this paragraph shall be complied with in respect of such policy and that such
policy shall provide that the coverage thereunder for the Premises and
occurrences in, on or about the Premises shall not be diminished by occurrences
elsewhere.
(e) Tenant covenants that it will not do or commit, or
suffer or permit to be done or committed, any act or thing as a result of which
any policy of insurance of any kind on or in connection with the Premises or the
Property or any part thereof shall become void or suspended, or the insurance
risk on the Property or any part thereof shall (in the opinion of any insurer or
proposed insurer) be rendered more hazardous. Tenant shall pay as Additional
Rent, within fifteen (15) days after being billed therefor, the amount of any
increase of premiums for such insurance resulting from any breach of this
covenant by Tenant. If Tenant creates, suffers or permits any risk against
which insurance cannot be obtained, whether such creation, sufferance or
permission is or is not a default, Landlord shall, without limitation of
Landlord's rights and remedies in the event of a default, nevertheless have the
right to terminate this Lease upon written notice to Tenant but only if Tenant
does not cease such activity creating the uninsured risk within five (5) days
after notice from Landlord.
7. Tenant's Trade Fixtures. Tenant shall have the right to
-----------------------
install trade fixtures (including laboratory equipment and fixtures and attached
furniture and cabinetry) required by Tenant or used by it in its business and,
if installed by Tenant, to remove any or all such trade fixtures from time to
time during this Lease, and Tenant shall remove all such trade fixtures prior to
the expiration or termination of this Lease; provided, however, that Tenant
shall not remove any such trade fixture, without the prior written consent of
Landlord, if the removal of such trade fixtures will impair the structure of the
Building or the Premises. Tenant shall repair and restore any damage or injury
to the Premises caused by the installation and/or removal of any such trade
fixtures. In the event that Tenant fails to remove all such trade fixtures
prior to the expiration or termination of this Lease, Landlord may remove all
such trade fixtures and dispose of them without notice or obligation to Tenant
and Tenant shall reimburse Landlord for Landlord's cost of such removal and
disposal.
8. Signs. Landlord will provide one standard identification sign
-----
adjacent to the main entrance of the Premises and a listing on the directory for
the Building located at the street entrance to
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the Property. Tenant not install any signs on the exterior of the Premises or
within the Premises which may be visible from the outside of the Premises.
9. Repairs and Condition of Premises.
---------------------------------
(a) Tenant covenants that at the expiration or earlier
termination of this Lease, Tenant shall leave the Premises, and during the Term
will keep the Premises, in good order and condition. Tenant will make all
necessary repairs and replacements to the Premises; provided, however, that
Tenant is not responsible to provide any maintenance, repair or service which is
expressly Landlord's obligation hereunder. Tenant shall use every reasonable
precaution against fire.
(b) Tenant shall at all times remove all dirt, rubbish,
waste and refuse from the Premises, keep and maintain the Premises in a clean,
neat and sanitary condition throughout the Term and at the Expiration Date will
also have removed all of Tenant's property therefrom, to the end that Landlord
may again have and repossess the entire Premises in good order and condition.
Any and all janitorial service desired by Tenant for the Premises shall be
contracted for by Tenant directly with a janitorial contractor and the cost and
payment thereof shall be the sole responsibility of Tenant and Landlord shall
have no obligation to provide any janitorial services.
(c) In the event that any repair is required by reason of
the removal of Tenant's property or any negligence or abuse of Tenant or its
agents, employees, invitees or of any other person using the Premises with
Tenant's express or implied consent, Landlord may make such repair and Tenant
shall, within fifteen (15) days of receipt of a written statement from Landlord,
pay to Landlord the costs of such repair as Additional Rent.
(d) Tenant shall provide at Tenant's sole cost and expense
all trash removal including, without limitation, all municipal trash, residual
(or industrial) trash, biological, hazardous and radioactive refuse or waste and
all recycables. Tenant shall comply with all legal requirements applicable to
the disposal and/or recycling of any of the foregoing. No portion of the
Property shall be used or maintained for the dumping of rubbish or debris except
in dumpsters or receptacles at locations approved by the Landlord. Trash,
garbage and other waste shall be dumped in such containers collections at least
weekly. Hazardous or contaminated waste shall only be stored inside the Premises
until it is disposed of by the Tenant in strict compliance with all applicable
law.
(e) Attached to this Lease as Exhibit "B" is an inventory of
furniture and other personal property owned by Landlord and being leased to
Tenant as part of the Property (hereinafter the "Furniture"). Tenant shall
maintain the Furniture and shall return it to Landlord at the expiration or
earlier termination of this Lease in the same condition as existed on the
Commencement Date, ordinary wear and tear excepted. If Tenant wishes to
rearrange or reconfigure any of the Furniture that is modular or attached
components, Tenant shall have such rearrangement or reconfiguration performed at
Tenant's expense by the contractor who supplied such Furniture to the Landlord.
10. Alterations. Tenant shall not, without on each occasion first
-----------
obtaining Landlord's prior written consent which shall not be unreasonably
withheld, make or permit to be made any alterations, improvements or additions
to the Premises. Landlord shall have the right to condition or deny approval
for any alterations based upon the effect of such alterations on the Building,
any of the systems or equipment in the Building or any of the services that are
to be provided by Landlord under this Lease. Furthermore, Landlord can set any
conditions that it deems necessary for the grant of its approval to Tenant
including, without limitation, a requirement that the Tenant use contractors who
have provided to Landlord warranty coverage to landlord for any portion of the
Building that may be affected by the improvements, additions or alterations if
Landlord determines such warranties may be adversely
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<PAGE>
affected by such alterations. All alterations, improvements and additions that
may be expressly permitted by Landlord shall be performed in a good and
workmanlike manner and in compliance with all laws, ordinances, orders, rules
and other governmental requirements and will be performed by contractors
approved by Landlord. Except as otherwise provided herein with respect to trade
fixtures, all alterations, improvements, additions, repairs and all other
property attached to or used in connection with the Premises or any part thereof
made or installed on the Premises by or on behalf of Tenant shall immediately
upon completion or installation thereof be and become part of the Premises and
the property of Landlord without payment therefor by Landlord and shall be
surrendered to Landlord upon the expiration or earlier termination of the term
of this Lease. All additions, alterations and improvements made by Tenant shall
be maintained by Tenant. Tenant shall give to Landlord "as built" drawings of
any improvements, alterations or additions made by Tenant to the Premises within
thirty (30) days after the improvements, alterations or additions. By notice
given to Tenant, Landlord may require that any alterations, additions and
improvements made in or upon the Premises be removed by Tenant. In that event,
Tenant will remove such alterations, additions and improvements at Tenant's sole
cost and will restore the Premises to the condition in which they were before
such alterations, additions and improvements were made.
11. Landlord's Right of Entry. Tenant agrees to permit Landlord and
-------------------------
the authorized representatives of Landlord and of the holder of any mortgage or
any prospective mortgagee to enter the Premises at any time in response to an
emergency and otherwise at all reasonable times and upon reasonable notice for
the purpose of making inspections to satisfy itself that Tenant has complied
with the provisions of this Lease, making any necessary repairs to the Premises,
performing any work therein that may be necessary by reason of Tenant's failure
to make such repairs or perform any such work required of Tenant under this
Lease, or making any alterations, improvements or repairs to the Building or for
any purpose in connection with the management or operation of the Property.
Nothing herein shall imply any duty upon the part of Landlord to make any such
inspection and nothing herein shall imply any duty on the part of Landlord to do
any other work which under any provision of this Lease Tenant may be required to
perform and the performance thereof by Landlord shall not constitute a waiver of
Tenant's default in failing to perform it. Landlord shall not in any event be
liable for inconvenience, annoyance, disturbance or other damage to Tenant by
reason of any of the foregoing and the obligations of Tenant under this Lease
shall not thereby be affected in any manner whatsoever. Landlord also shall have
the right to enter the Premises at all reasonable times to exhibit the Premises
to any prospective tenant or mortgagee thereof, within the last nine (9) months
of the Term and to any prospective purchaser or mortgagee thereof or any
prospective mortgagee at any time during the Term. No entry into the Premises by
Landlord by any means will constitute a forcible or unlawful entry into the
Premises, or a detainer of the Premises, or an eviction, actual or constructive,
of Tenant from the Premises or any part thereof, nor will such entry entitle
Tenant to damages or an abatement of the rent or other sums due hereunder.
12. Non-Abatement of Rent. Except as expressly provided herein, it
---------------------
is understood and agreed that damage to or destruction of all or any portion of
the Premises by fire or by any other cause shall not terminate this Lease nor
entitle Tenant to surrender the Premises or to terminate this Lease nor in any
way affect Tenant's obligation to pay the Minimum Rent, Additional Rent and
other sums payable hereunder. Tenant's covenants to pay the Minimum Rent,
Additional Rent and all other sums payable hereunder are independent of any
other covenant, agreement, term or condition of this Lease.
13. Governmental Regulations; Covenants Affecting the Property.
----------------------------------------------------------
(a) Tenant shall throughout the Term, at Tenant's sole cost
and expense, promptly comply with all laws and ordinances and notices, orders,
rules, regulations and requirements of all federal, state and local governments
and appropriate departments, commissions, boards and officers thereof, and
notices, orders, rules and regulations of the National Board of Fire
Underwriters, or any
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<PAGE>
other body now or hereafter constituted exercising similar functions, relating
to all or any part of the Premises (except those for repairs and maintenance
which Landlord is obligated by the terms of this Lease to perform or for which
Landlord is to be reimbursed as an Operating Cost) or to the use or manner of
use of the Premises.
(b) Tenant shall also abide by all terms and conditions of
those certain Protective Covenants for Great Valley Corporate Center (the
"Covenants") to which the Property is subject and the terms and conditions of
the Covenants are incorporated herein by reference.
14. Environmental Matters.
---------------------
(a) Without otherwise limiting Tenant's obligations under
the provisions of this Lease relating to compliance with government regulations,
Tenant shall conduct, and cause to be conducted, all operations and activities
at the Premises in compliance with, and shall in all other respects applicable
to the Premises comply with, all present and future applicable statutes,
ordinances, governmental regulations, orders and directives, and all applicable
requirements of common law (all of the foregoing being hereinafter referred to
collectively as the "Environmental Laws"), concerning (i) operations at the
Premises, (ii) handling of any materials including without limitation
radioactive and biohazardous materials, (iii) emission, release or discharge of
any pollutant into the air, the presence or passage of any effluent or pollutant
or the discharge of any effluent or pollutant into any water or soil, or the
presence, passage or release of any substance or matter, or (iv) the storage,
treatment, disposal, presence or passage of any solid waste, industrial waste,
or hazardous waste or substance at, from or connected with operations at any
premises. Tenant shall obtain all permits, licenses, or approvals and shall
make and file all notifications and registrations as required by Environmental
Laws in a timely manner. Tenant shall at all times comply with the terms and
conditions of any such permits, licenses, approvals, notifications and
registrations.
(b) Tenant shall provide to Landlord copies of the
following, forthwith after each shall have been submitted, prepared or received
by Tenant or any occupant of the Premises:
(i) all applications and associated materials
submitted to any governmental agency for compliance with any Environmental Law;
(ii) all documents and other information
relating in any way to the Premises submitted to any governmental agency in
response to a request purporting to be pursuant to any Environmental Law;
(iii) any notification, registration, record,
report or manifest, and supporting information, submitted or maintained in
connection with any Environmental Law;
(iv) any permit, license, approval, or
amendment or modification thereof obtained under any Environmental Law; and
(v) any correspondence, notice of violation,
summons, order, complaint, or other document received by Tenant or any occupant
of the Premises pertaining to compliance with any Environmental Law.
(c) Tenant shall indemnify and hold harmless Landlord of,
from and against any and all expense, loss or liability suffered by Landlord by
reason of Tenant's breach of any of the provisions of this paragraph, including,
but not limited to, (i) any and all expenses that Landlord may incur in
complying with any Environmental Laws, (ii) any and all costs that Landlord may
incur in studying, containing, removing, remedying, mitigating, or otherwise
responding to, the release of any
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<PAGE>
hazardous substance or waste at or from the Premises, (iii) any and all costs
for which Landlord may be liable to any governmental agency for studying,
containing, removing, remedying, mitigating, or otherwise responding to, the
release of any hazardous substance or waste at or from the Premises, (iv) any
and all fines or penalties assessed upon Landlord by reason of a failure of
Tenant to comply with the provisions of this Paragraph, (v) any and all loss of
value of the Property by reason of such failure to comply, and (vi) any and all
legal fees and costs incurred by Landlord in connection with any of the
foregoing.
(d) No subsequent modification or termination of this Lease
by agreement of the parties, or otherwise shall be construed to waive, or to
modify, any provisions of this paragraph, unless the termination or modification
agreement or other document so states in writing.
(e) The terms utilized in this paragraph shall be defined as
they are defined in the Environmental Laws as amended from time to time or in
future federal legislation and/or regulations and in corresponding present or
future provisions of law and/or regulations in the state, county and/or
municipality where the Premises are located.
(f) Tenant shall promptly notify Landlord of any inspection
of the Premises conducted or to be conducted by any governmental agency or
authority with respect to environmental conditions relating to the Premises or
Tenant's use thereof.
(g) Landlord represents that Landlord has received no
notices of any violations of applicable Environmental Laws with respect to
Landlord's operations on the Premises and, to the best of Landlord's actual
knowledge, Landlord's use of the Premises prior to the commencement of the Term
complied with the then applicable Environmental Laws. Landlord shall indemnify
and hold Tenant harmless from and against any claims arising from any
environmental conditions that exist on the Property prior to the commencement of
this Lease and any violations of Environmental Laws caused by Landlord, its
agents or employees or any other tenant of Landlord (other than environmental
conditions that may be caused by Symphony Pharmaceuticals, Inc. after the
Commencement Date of the Term of the Lease). Tenant shall not be responsible for
any environmental conditions that exist on the Premises prior to the
commencement of this Lease or any violations of Environmental Laws caused prior
to the commencement of this Lease by parties other than the Tenant, its
employees, agents, contractors or invitees.
(h) Tenant, prior to vacating the Premises upon the
termination or expiration of this Lease, shall remove all chemicals, product
inventory and other materials and agents relating to any operations and
activities that may have been conducted on the Premises by Tenant, or any of
Tenant's its employees, agents, subtenants, contractors or invitees and Tenant
shall leave the Premises free and clear of any environmental contamination of
any kind whatsoever caused by the Tenant, or any of Tenant's its employees,
agents, subtenants, contractors or invitees after the Commencement Date of the
Term of this Lease.
(i) The provisions of this Paragraph 14 shall survive
termination or expiration of this Lease.
15. Use of Premises. Tenant shall continuously occupy and use the
---------------
Premises solely for conducting the business specified in Part V. of the
Schedule. The Premises may not be used or occupied in whole or in part for any
other purpose. The business to be conducted by Tenant at the Premises shall be
conducted under the name set forth above in Part I.D. of the Schedule.
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<PAGE>
16. Mechanics' Liens, etc.
----------------------
(a) Tenant will not create or permit to be created or
remain, and will discharge, any lien, encumbrance or charge (levied on account
of any imposition or any mechanic's, laborer's or materialman's lien) which
might be or become a lien, encumbrance or charge upon the Premises, the Property
or any part thereof or the income therefrom, and Tenant will not suffer any
other matter or thing whereby the estate, rights and interest of Landlord in the
Premises, the Property or any part thereof might be impaired; provided that any
mechanic's, laborer's or materialman's lien may be discharged in accordance with
the provisions set forth below.
(b) If any mechanic's, laborer's or materialman's lien shall
at any time be filed against the Premises, the Property or any part thereof,
Tenant, within fifteen (15) days after notice of the filing thereof, will cause
it to be discharged of record by payment, deposit, bond, order of the court of
competent jurisdiction or otherwise.
(c) Nothing in this Lease shall be deemed or construed in
any way as constituting the consent or request of Landlord, express or implied,
to any contractor, subcontractor, laborer or materialman for the performance of
any labor or the furnishing of any materials for any specific alteration,
addition, improvement or repair to the Premises or any part thereof. Nothing in
this Lease or in any other document executed by Landlord shall be construed to
constitute an acknowledgment that any work done or material provided by any
contractor, subcontractor or materialman of Tenant was done or provided for the
immediate use and benefit of Landlord.
(d) Prior to the making of any alterations, additions or
improvements to the Premises and in any event within ten (10) days following the
execution of any contract for such work, Tenant shall cause to be filed in the
Office of the Prothonotary of the county in which the Premises are located
waivers of mechanic's and materialmen's liens in form satisfactory to Landlord's
counsel, such waivers to be binding on all subcontractors and materialmen.
17. Indemnification and Release of Landlord.
---------------------------------------
(a) Tenant agrees to indemnify and save harmless Landlord
from and against any and all claims, losses, liabilities and expenses
(including, without limitation, attorneys' fees and court costs) arising in
connection with (i) the occupancy, conduct or operation of the Premises or from
any work or thing whatsoever done or failed to be done in and on the Premises,
(ii) any breach or default on the part of Tenant in the performance of any
covenant or agreement on the part of Tenant to be performed pursuant to the
terms of this Lease or under any law, (iii) any act, neglect or negligence of
Tenant, or any of its agents, contractors, servants, employees, or licensees, or
(iv) any accident, injury or damage whatsoever caused to any person, firm or
corporation occurring during the Term, in or on the Premises, other than caused
by the negligence or wilful misconduct of Landlord or any agent, employee or
contractor of Landlord or another tenant of the Property. In case any action or
proceeding be brought against Landlord by reason of any such claim, Tenant, upon
notice from Landlord, covenants at Tenant's cost and expense to resist or defend
such action or proceeding or to cause it to be resisted or defended by an
insurer.
(b) Landlord shall indemnify and save harmless Tenant from
and against (i) any and all claims, losses, liabilities and injuries suffered by
Tenant (including, without limitation, attorneys' fees and court costs) caused
by any gross negligence or wilful misconduct of Landlord or Landlord's agents,
employees or contractors; or (ii) except to the extent released by Tenant under
other provisions of this Lease, any claim, action, damages, liability and
expense in connection with loss of life, personal injury or damage to property
caused to any person in or about the Property by the negligence or wilful
misconduct of Landlord.
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<PAGE>
(c) Tenant hereby releases Landlord, its principals, agents,
employees and contractors from, all claims for death, personal injury or damage
to property or business sustained by Tenant or any person claiming by, through
or under Tenant resulting from fire, accident, defect in the Premises or the
Property, any defect in or any failure of any equipment, machinery, utilities,
appliances or apparatus in the Premises or the Property, falling of fixtures or
other items, leakage of water, snow or ice, broken glass, or any circumstance
that is beyond the control of Landlord, other than caused by the gross
negligence or wilful misconduct of Landlord and any failure of Landlord to
perform any of its obligations under this Lease.
(d) The foregoing indemnification and release shall survive the
expiration or sooner termination of this Lease.
18. Covenant of Quiet Enjoyment. Landlord covenants that Tenant, upon
---------------------------
paying the Minimum Rent, Additional Rent and other charges herein provided for
and upon observing and keeping all covenants, agreements and conditions of this
Lease on its part to be kept, shall have quiet enjoyment of the Premises during
the Term without disturbance by anyone claiming by or through Landlord, subject,
however, to the exceptions, reservations and conditions of this Lease.
19. Condemnation.
------------
(a) If twenty-five percent (25%) or more of the Premises, or if
all or a substantial portion of the Building or the Property is taken or
condemned for a public or quasi-public use under any statute or by right of
eminent domain by any competent authority or sold in lieu of such taking or
condemnation, such that in the sole opinion of Landlord the Building is not
economically operable as before without substantial alteration or
reconstruction, this Lease shall terminate as of the date the right of
possession vests in the condemnor (the "Taking Date"). The rent herein reserved
shall be apportioned and paid in full by Tenant to Landlord to the Taking Date
and all rent prepaid for periods beyond the Taking Date shall forthwith be
repaid by Landlord to Tenant and neither party shall thereafter have any
liability hereunder. Tenant shall have the right to make a claim against the
condemnor for Tenant's trade fixtures and for moving and related expenses which
are payable to tenants under the Eminent Domain Code of Pennsylvania. Except as
aforesaid, Tenant hereby waives all claims against Landlord and all claims
against the condemnor, and Tenant hereby assigns to Landlord all claims against
the condemnor including, without limitation, all claims for leasehold damages
and diminution in the value of Tenant's leasehold interest.
(b) If twenty-five percent (25%) or less of the Premises is so
taken or condemned, then this Lease shall terminate as of the Taking Date as to
the portion of the Premises so taken or condemned and this Lease shall continue
in full force as to the remainder of the Premises with the Minimum Rent and
Additional Rent abating only to the extent of the rentable area of the Premises
so taken or condemned.
(c) If the condemnor should take only the right to possession for
a fixed period of time or for the duration of an emergency or other temporary
condition, then, notwithstanding anything hereinabove provided, this Lease shall
continue in full force and effect with an abatement of Minimum Rent and
Additional Rent to the extent of the amounts payable by the condemnor with
respect to any period of time prior to the expiration or sooner termination of
this Lease, and Tenant shall pay to Landlord any deficiency between the amount
thus payable by the condemnor and the amount of such rent, while Landlord shall
pay over to Tenant any excess of the amount of the award over the amount of such
rent.
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20. Fire or Other Casualty.
----------------------
(a) If the Premises or the Building is damaged by fire or other
insured casualty, Landlord will give Tenant written notice of the time that
Landlord has determined in its sole discretion will be needed to repair the
damage, and the election, if any, that Landlord has made according to the
provisions below. Such notice will be given not later than thirty (30) days
after the fire or other insured casualty (the "Notice Date").
(b) If the Premises or the Building is damaged by fire or other
insured casualty to an extent Landlord has determined in its sole discretion
can be repaired within one hundred twenty (120) days after the Notice Date,
Landlord will promptly begin to repair the damage after the Notice Date and will
diligently pursue the completion of such repair subject to delays for insurance
adjustment and to delays beyond Landlord's control; provided Landlord shall have
no duty to repair or replace any personal property of Tenant or any alterations,
improvements or additions made by Tenant to the Premises. In that event this
Lease will continue in full force and effect except that the Minimum Rent and
Additional Rent will be abated on a pro rata basis from the date of the fire or
casualty until the date of the completion of such repairs (the "Repair Period")
based on the proportion of the rentable area of the Premises that Tenant is
unable to use during the Repair Period.
(c) If the Premises or the Building is damaged by fire or other
insured casualty to an extent Landlord has determined in its sole discretion
cannot be repaired within one hundred twenty (120) days after the Notice Date,
then (i) Landlord may terminate this Lease as of the date of the damage by
written notice given to Tenant on or before the Notice Date or (ii) Tenant may
cancel this Lease as of the date of the damage by written notice given to
Landlord within ten (10) days after Landlord's delivery of a written notice that
the repairs cannot be made within one hundred twenty (120) days. If neither
Landlord nor Tenant so elects to cancel this Lease, Landlord will diligently
proceed to repair the Building and Premises, subject to delays for insurance
adjustment and to delays beyond Landlord's control, and Minimum Rent and
Additional Rent will be abated on a pro rata basis during the Repair Period
based on the proportion of the rentable area of the Premises that Tenant is
unable to use during the Repair Period.
(d) If the Premises or the Building is damaged by uninsured casualty,
or if the proceeds of insurance are insufficient to pay for the repair of any
damage to the Premises or the Building, Landlord will have the option either to
elect to repair the damage or to cancel this Lease as of the date of the
casualty by written notice given to Tenant on or before the Notice Date.
(e) If any damage by fire or other casualty is the result of the
willful conduct or negligent act or omission of Tenant, its agents, contractors,
employees or invitees, Minimum Rent and Additional Rent will not be abated.
Tenant will have no right to terminate this Lease on account of any damage to
the Premises or the Building, except as set forth in this Lease.
21. Assignment and Subletting.
-------------------------
(a) Tenant shall not mortgage, pledge or encumber this Lease,
collaterally or otherwise. Subject to the right of Tenant to sublet a portion
of the Premises to Symphony Pharmaceuticals, Inc. in accordance with paragraph
21(b) below, Tenant shall not assign this Lease, or sublet the whole or any part
of the Premises, or suffer or permit the use and occupancy thereof by anyone
other than Tenant and its employees. This prohibition against assigning or
subleting shall be construed to include a prohibition against any assignment or
subletting by operation of law or by any transfer, sale, pledge or other
disposition, in any single transaction or cumulatively during the Term, of fifty
percent (50%) or more of the ownership interest in Tenant.
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<PAGE>
(b) Tenant shall have the right to sublet up to 3,370 square feet of
the Premises to Symphony Pharmaceuticals, Inc. for up to the entire term of this
Lease, provided that Tenant shall not be relieved of any obligation to Landlord
under this Lease including, without limitation, the obligation to pay all
Minimum Rent and Additional Rent. In the event that Tenant shall receive, in
any form, any sublet rent from its subtenant in excess of the amounts of Minimum
Rent and/or Additional Rent payable by Tenant under this Lease, Tenant shall
remit such excess to Landlord and such excess shall be deemed Additional Rent.
22. Subordination.
-------------
(a) This Lease shall be subject and subordinate at all times to any
mortgage, deed of trust or other encumbrance heretofore or hereafter placed upon
the Premises or the Property and of all renewals, modifications, consolidations,
replacements and extensions thereof (all of which are hereinafter referred to
as, collectively a "Mortgage") except to the extent that any Mortgage provides
that this Lease is superior to that Mortgage. This provision shall operate
automatically and without the necessity of any further act on the part of Tenant
to effectuate such subordination. Tenant agrees, at the request of any person
who may acquire Landlord's estate by foreclosure or transfer in lieu of
foreclosure, to attorn to such person and to execute, acknowledge and deliver,
upon demand by Landlord, any holder of a Mortgage or such person who may acquire
Landlord's estate, but in no event later than ten (10) days after such demand,
such further instruments evidencing and confirming such subordination of this
Lease and such instruments evidencing such attornment obligation. Tenant hereby
irrevocably appoints Landlord the attorney-in-fact of Tenant (such power of
attorney being coupled with an interest), to execute, acknowledge and deliver
any such instruments for and in the name of Tenant in the event Tenant shall
fail to sign such documents requested by Landlord.
(b) Notwithstanding the foregoing, any holder of any Mortgage may at
any time subordinate its Mortgage to this Lease, without Tenant's consent, by
notice in writing to Tenant, and thereupon this Lease shall be deemed prior to
such Mortgage without regard to their respective dates of execution, delivery
and recording and in that event such holder shall have the same rights with
respect to this Lease as though this Lease had been executed, delivered and
recorded prior to the execution, delivery and recording of such Mortgage.
23. Estoppel Certificate.
--------------------
(a) Tenant agrees at any time and from time to time, within fifteen
(15) days after Landlord's written request or that of any mortgagee of Landlord,
to execute, acknowledge and deliver to Landlord a written instrument in
recordable form certifying (i) whether this Lease is in full force and effect
and if there have been modifications, supplements, side agreements or
amendments, and if so, stating such modifications, supplements, side agreements
and amendments; (ii) the dates to which Minimum Rent, Additional Rent and other
charges have been paid; (iii) the amount of any prepaid rents or to the best of
Tenant's knowledge, credit due Tenant, if any; (iv) that Tenant has accepted
possession and has occupied the Premises, the Commencement Date and whether any
option to extend the Term has been exercised and if so, the Expiration Date; (v)
whether, to the best knowledge of Tenant, Landlord is in default in the
performance of any covenant, agreement or condition contained in this Lease and,
if so, specifying each such default of which Tenant may have knowledge; (vi)
that no notice has been received by Tenant of any default which has not been
cured or, if such default has not been cured, what Tenant intends to do in order
to effect the cure; and (vii) and such other matters as Landlord or Landlord's
mortgagee may reasonably require. Any such instrument delivered pursuant to
this paragraph may be relied upon by Landlord, any prospective purchaser of the
Property, any mortgagee or prospective mortgagee thereof, any assignee of
Landlord's interest in this Lease or of any mortgage upon the Property or any
purchaser of an interest in Landlord.
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<PAGE>
(b) If within ten (10) days after Landlord's written request
for an instrument in accordance with the provisions hereof Tenant has not
delivered such instrument, Landlord may elect to send Tenant Landlord's
certificate setting forth the information described above. Tenant's failure to
execute, acknowledge and deliver to Landlord the written instrument described
above within five (5) days after delivery of Landlord's certificate shall
constitute an acknowledgement by Tenant, which may be relied upon by Landlord,
any prospective purchaser of the Property, any mortgagee or prospective
mortgagee thereof, any assignee of Landlord's interest in this Lease or any
mortgage upon the Property, or any purchaser of an interest in Landlord that the
information set forth on Landlord's certificate is true and correct and shall
constitute, as to any person entitled to rely as aforesaid and to the extent
set forth therein, a waiver of any defaults by Landlord which may exist prior to
the date of such request. Furthermore, Tenant irrevocably appoints Landlord as
Tenant's attorney-in-fact to execute and deliver on Tenant's behalf Landlord's
certificate if Tenant does not execute, acknowledge and deliver an instrument
within such fifteen (15) day period.
24. Curing Tenant's Defaults. Subject to the provisions below requiring
------------------------
Landlord in certain instances to give to Tenant written notice of Tenant's
default and an opportunity to cure such default (but not subject thereto in the
event of an emergency situation (as reasonably determined by Landlord)), if
Tenant shall be in default in the performance of any of its obligations
hereunder, Landlord may (but shall not be obligated to do so), in addition to
any other rights it may have in law or equity, cure such default on behalf of
Tenant, and Tenant shall reimburse Landlord upon demand for any sums paid or
costs incurred by Landlord in curing such default, including interest at the
Default Rate, from the respective dates of Landlord's making of the payments and
incurring of the costs, on all sums advanced by Landlord as aforesaid, which
sums and costs together with interest thereon shall be deemed Additional Rent
payable hereunder.
25. Notices; Payment of Rent. All notices, demands, requests,
------------------------
consents, certificates and waivers from either party to the other shall be in
writing and sent by United States registered or certified mail, return receipt
requested, postage prepaid, or by overnight express delivery service or by
courier service, against written receipt or signed proof of delivery addressed
to the party at the address set forth above in Part I. of the Schedule I, or to
such other address as the party to receive the notice, demand, request, consent,
certificate or waiver may hereafter designate by written notice to the other.
All payments of rent hereunder shall be made to Landlord at the address from
time to time designated as aforesaid for the giving of notice. All notices,
demands, requests, consents, certificates and waivers shall be deemed, given and
effective two business days following the date deposited in the United States
mail and on the next business day if delivered to an overnight express delivery
service or courier service.
26. Condition of Title and of Premises. Tenant represents that the
----------------------------------
Premises, the title thereto, the zoning thereof, the street or streets,
sidewalks, parking areas, curbs and access ways adjoining them, any surface and
subsurface conditions thereof, and the present uses and nonuses thereof, have
been examined by Tenant, and Tenant accepts them in the condition or state in
which they now are, or any of them now is, without representation, covenant or
warranty, express or implied, in fact or in law, by Landlord and without
recourse to Landlord, as to the title thereto, encumbrances thereon,
appurtenances, the nature, condition or usability thereof or the use or uses to
which the Premises or any part thereof may be put. Except as may be expressly
set forth in this Lease, the Premises is being leased to Tenant strictly in
"as-is" condition.
27. Surrender. At the expiration or earlier termination of this Lease,
---------
Tenant shall surrender the Premises in good order and condition. If Landlord
requires Tenant to remove any alterations, improvements or additions, Tenant
shall remove the same prior to the expiration or earlier termination of this
Lease, at Tenant's sole cost, and shall restore the Premises to the condition in
which they were
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<PAGE>
before such alterations, improvements and additions were made. All alterations,
improvements and additions not so removed will conclusively be deemed to have
been abandoned by Tenant and may be appropriated, sold, stored, destroyed or
otherwise disposed of by Landlord without notice to Tenant or to any other
person and without obligation to account for them. Tenant will pay Landlord
all expenses incurred in connection with Landlord's disposition of such
property, including without limitation the cost of repairing any damage to the
Premises caused by the removal of such property. Tenant's obligation to observe
and perform this covenant will survive the expiration or earlier termination of
this Lease.
28. Holdover. If Tenant or any person claiming through Tenant
--------
shall retain possession of the Premises or any part thereof after the expiration
or earlier termination of this Lease and, if Landlord shall have expressly
consented, in writing, to such continuation of possession, such possession shall
be (unless the parties hereto shall otherwise have agreed in writing) deemed to
be under a month-to-month tenancy which shall continue until either party shall
notify the other, in writing, at least thirty (30) days prior to the end of any
calendar month, that the party giving such notice elects to terminate such
tenancy at the end of such calendar month, in which event such tenancy shall so
terminate. Anything contained in the preceding sentence to the contrary
notwithstanding, the Minimum Rent payable with respect to each such monthly
period shall be two hundred percent (200%) of the Minimum Rent payable for the
last month of the Term and, otherwise, month-to-month tenancy with Landlord's
express consent shall be upon the same terms and subject to the same conditions,
as those which are set forth in this Lease; however, Tenant shall have no right
to exercise any option to extend the Term, option to purchase or right of first
refusal. The provisions hereof shall not be deemed to limit or constitute a
waiver of any other rights or remedies of Landlord provided in this Lease or at
law or in equity and applicable to unlawful retention of possession or
otherwise. Landlord's acceptance of rent under the provisions hereof shall not
be deemed consent to the holdover.
29. Defaults; Landlord's Remedies; Tenant's Remedies.
------------------------------------------------
(a) It shall be a default if any of the following shall
occur:
(i) Tenant does not pay in full when due
any and all installments of Minimum Rent or Additional Rent or any other charge
and such default continues for five (5) business days after notice thereof from
Landlord; provided that if Landlord shall have given two (2) notices in any
twelve (12) consecutive month period, no further notice need be given by
Landlord and a default for nonpayment shall thereafter be deemed to have
occurred if failure to pay continues for five (5) business days after the date
the payment was due;
(ii) Tenant violates or fails to perform or
comply with any covenant or condition (other than the payment of Minimum Rent or
Additional Rent or except as otherwise provided below) herein contained and such
default continues for a period of thirty (30) days after Tenant receives written
notice from Landlord, provided as to those matters which cannot reasonable be
cured in such (30) day period, such period shall be extended for a reasonable
time provided Tenant has commenced such cure within such thirty (30) days and
is proceeding with due diligence and in good faith;
(iii) Tenant removes or attempts to remove
Tenant's property therefrom other than in the ordinary course of business or
vacates or abandons the Premises without having first paid to Landlord in full
all Minimum Rent and Additional Rent and charges that may have become due as
well as all which will become due thereafter;
(iv) Tenant mortgages, pledges, encumbers or
assigns this Lease or sublets the whole or part of the Premises in violation of
the provisions of this Lease;
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<PAGE>
(v) Tenant fails to take possession and
occupy the Premises on the Commencement Date;
(vi) Tenant records this Lease, a short form
of this Lease or a memorandum of this Lease without the consent of Landlord;
(vii) An involuntary case under the federal
bankruptcy law as now or hereafter constituted is commenced against Tenant or
any guarantor or surety of Tenant's obligations under this Lease ("Guarantor"),
or under any applicable federal or state bankruptcy, insolvency, reorganization
or other similar law, or there is filed against Tenant or a Guarantor a petition
seeking the appointment of a receiver, liquidator or assignee, custodian,
trustee, sequestrator (or similar official) of Tenant or a Guarantor or any
substantial part of Tenant's or Guarantor's property, or seeking the winding-up
or liquidation of Tenant's or Guarantor's affairs and such involuntary case or
petition is not dismissed within sixty (60) days after the filing thereof, or if
Tenant or a Guarantor commences a voluntary case or institutes proceedings to be
adjudicated as bankrupt or insolvent or consents to the entry of an order for
relief under the bankruptcy laws as now or hereafter constituted, or any other
applicable federal or state bankruptcy or insolvency or other similar law, or
consents to the appointment of or taking possession by a receiver or liquidator
or assignee, trustee, custodian, sequestrator (or other similar official) of
Tenant or a Guarantor or of any substantial part of Tenant's or a Guarantor's
property, or if Tenant or any Guarantor makes any assignment for the benefit
of creditors or admits in writing its inability to pay its debts generally as
they become due or fails to pay generally its debts as they become due or if
Tenant is levied upon and is about to be sold out upon the Premises by any
sheriff, marshal or constable or if Tenant or its stockholders or Board of
Directors or any committee thereof takes any corporate action in contemplation,
preparation or furtherance of or for any of the foregoing; or
(viii) A material adverse change in the
financial condition of Tenant or a Guarantor.
(b) In any such event set forth above, Landlord may
exercise any one or more of the following remedies at the sole option of
Landlord.
(i) Landlord may, in a writing delivered to
Tenant, declare immediately due and payable the Minimum Rent, the Additional
Rent and all other charges due hereunder for the entire unexpired balance of the
Term, in addition to any rent or charges already due and payable, as if by the
terms of this Lease the whole balance of unpaid rent and other charges were due
on that day payable in advance.
(ii) Landlord may terminate this Lease by
written notice to Tenant, and, on the date specified in the notice, Tenant's
right to possession shall cease and this Lease will be terminated (except as to
Tenant's liability set forth in the following sentence). If Landlord terminates
this Lease, Landlord may recover from Tenant a judgement for damages computed as
follows, in addition to its other remedies:
(A) the unpaid rent (both Minimum and
Additional Rent) which has accrued up to the time of such termination plus
interest from the dates such rent was due to the date of the judgment at the
Default Rate; plus
(B) unpaid rent which would have
accrued (had this Lease continued) after termination until the date of the
judgement; plus
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<PAGE>
(C) any other amount necessary to compensate
Landlord for all the detriment proximately caused by Tenant's failure to perform
its obligations under this Lease or which in the ordinary course would be likely
to result therefrom including, without limitation, the cost of repairing the
Premises and reasonable attorneys' fees; plus
(D) at Landlord's election, such other amounts in
addition to or in lieu of the foregoing as may be permitted by applicable law.
(iii) Landlord may terminate Tenant's right of possession
and may re-enter and repossess the Premises by legal proceedings, force or
otherwise, without terminating this Lease.
(iv) After re-entry or retaking or recovering of the
Premises, whether by termination of this Lease or not, Landlord may, but shall
be under no obligation to, make such alterations and repairs, if any, as
Landlord may deem then necessary or advisable and relet the Premises or any part
or parts thereof, either in Landlord's name or otherwise, for a term or terms
which may at Landlord's option be less than or exceed the period which otherwise
would have constituted the balance of the Term and at such rent or rents and
upon such other terms and conditions as in Landlord's sole discretion may seem
advisable and to such person or persons as may in Landlord's discretion seem
best. Tenant shall be liable for any loss of rent for such period as would be
the balance of the Term and any renewal or extension for which Tenant had become
bound prior to a default of this Lease plus the cost and expenses of reletting
and of redecorating, remodeling or making repairs and alterations to the
Premises for the purpose of reletting, the amount of such liability to be
computed monthly and to be paid by Tenant to Landlord from time to time upon
demand. Landlord shall in no event be liable for, nor shall any damages or
other sums to be paid by Tenant to Landlord be reduced by, failure to relet the
Premises or failure to collect the rent from any reletting. Tenant shall not be
entitled to any rents received by Landlord in excess of the rents provided for
in this Lease. Tenant agrees that Landlord may file suit to recover any sums
falling due under the terms of this clause from time to time and that no suit or
recovery of any portion due Landlord hereunder shall be any defense to any
subsequent action brought for any amount not theretofore reduced to judgement in
favor of Landlord. Tenant, for Tenant and Tenant's successors and assigns,
hereby irrevocably constitutes and appoints Landlord as agent for Tenant and
Tenant's successors and assigns to collect the rents due or to become due under
all subleases of the Premises or any parts thereof without in any way affecting
Tenant's obligation to pay any unpaid balance of rent or any other sum due or to
become due hereunder. Notwithstanding any reletting without termination,
Landlord may at any time thereafter elect to terminate this Lease for Tenant's
previous breach.
Whenever Landlord shall have the right to re-enter the Premises, it
shall have the right to remove all persons and property from the Premises and
either treat such property as abandoned or, at Landlord's option, store it in a
public warehouse or elsewhere at the cost of and for the account of Tenant, all
without service of notice or resort to legal process and without being deemed
guilty of trespass, or becoming liable for any loss or damage which may be
occasioned thereby.
Tenant waives the right to any notice to remove as may be specified in
the Landlord and Tenant Act of Pennsylvania, Act of April 6, 1951, as amended,
or any similar or successor provision of law, and agrees that five (5) days
notice shall be sufficient in any case where a longer period may be statutorily
specified.
(c) In addition to, and not in lieu of any of the foregoing rights
granted to Landlord:
(i) IF TENANT SHALL DEFAULT IN THE PAYMENT OF THE RENT
HEREIN RESERVED OR IN THE PAYMENT OF ANY OTHER SUMS DUE HEREUNDER BY
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<PAGE>
TENANT, TENANT HEREBY AUTHORIZES AND EMPOWERS ANY PROTHONOTARY OR ATTORNEY OF
ANY COURT OF RECORD TO APPEAR FOR TENANT IN ANY AND ALL ACTIONS WHICH MAY BE
BROUGHT FOR SAID RENT AND/OR SAID OTHER SUMS; AND/OR TO SIGN FOR TENANT AN
AGREEMENT FOR ENTERING IN ANY COMPETENT COURT AN ACTION OR ACTIONS FOR THE
RECOVERY OF SAID RENTAL AND/OR OTHER SUMS; AND IN SAID SUITS OR IN SAID ACTION
OR ACTIONS TO CONFESS JUDGMENT AGAINST TENANT FOR ALL OR ANY PART OF SAID
RENTAL AND/OR SAID OTHER SUMS, AND FOR INTEREST AND COSTS, TOGETHER WITH AN
ATTORNEYS COMMISSION FOR COLLECTION OF FIVE PERCENT (5%). SUCH AUTHORITY SHALL
NOT BE EXHAUSTED BY ONE EXERCISE THEREOF, BUT JUDGMENT MAY BE CONFESSED AS
AFORESAID FROM TIME TO TIME AS OFTEN AS ANY OF SAID RENTAL AND/OR OTHER SUMS
SHALL FALL DUE OR BE IN ARREARS, AND SUCH POWERS MAY BE EXERCISED AS WELL AFTER
THE TERMINATION OR EXPIRATION OF THE TERM OF THIS LEASE.
(ii) WHEN THIS LEASE OR TENANT'S RIGHT OF
POSSESSION SHALL BE TERMINATED BY COVENANT OR CONDITION BROKEN, OR FOR ANY OTHER
REASON, EITHER DURING THE TERM OF THIS LEASE, AND ALSO WHEN AND AS SOON AS SUCH
TERM SHALL HAVE EXPIRED, IT SHALL BE LAWFUL FOR ANY ATTORNEY AS ATTORNEY FOR
TENANT TO FILE AN AGREEMENT FOR ENTERING IN ANY COMPETENT COURT AN ACTION AND
JUDGMENT IN EJECTMENT AGAINST TENANT AND ALL PERSONS CLAIMING UNDER TENANT FOR
THE RECOVERY BY LANDLORD OF POSSESSION OF THE PREMISES, FOR WHICH THIS LEASE
SHALL BE ITS SUFFICIENT WARRANT, WHEREUPON, IF LANDLORD SO DESIRES, A WRIT OF
EXECUTION OR OF POSSESSION MAY ISSUE FORTHWITH, WITHOUT ANY PRIOR WRIT OR
PROCEEDINGS, WHATSOEVER, AND PROVIDED THAT IF FOR ANY REASON AFTER SUCH ACTION
SHALL HAVE BEEN COMMENCED, THE SAME SHALL BE DETERMINED AND THE POSSESSION OF
THE PREMISES HEREBY DEMISED REMAIN IN OR BE RESTORED TO TENANT, LANDLORD SHALL
HAVE THE RIGHT UPON ANY SUBSEQUENT DEFAULT OR DEFAULTS, OR UPON THE TERMINATION
OF THIS LEASE AS HEREINBEFORE SET FORTH, TO BRING ONE OR MORE ACTION OR ACTIONS
AS HEREINBEFORE SET FORTH TO RECOVER POSSESSION OF THE SAID PREMISES.
IN ANY ACTION OF EJECTMENT OR FOR RENT IN ARREARS, LANDLORD SHALL FIRST CAUSE TO
BE FILED IN SUCH ACTION AN AFFIDAVIT MADE BY IT OR SOMEONE ACTING FOR IT SETTING
FORTH THE FACTS NECESSARY TO AUTHORIZE THE ENTRY OF JUDGMENT, OF WHICH FACTS
SUCH AFFIDAVIT SHALL BE CONCLUSIVE EVIDENCE, AND IF A TRUE COPY OF THIS LEASE
(AND OF THE TRUTH OF THE COPY SUCH AFFIDAVIT SHALL BE SUFFICIENT EVIDENCE) BE
FILED IN SUCH ACTION, IT SHALL NOT BE NECESSARY TO FILE THE ORIGINAL AS A
WARRANT OF ATTORNEY, ANY RULE OF COURT, CUSTOM OR PRACTICE TO THE CONTRARY
NOTWITHSTANDING.
30. Remedies Cumulative. All remedies available to Landlord
-------------------
hereunder and at law and in equity shall be cumulative and concurrent. No
termination of this Lease nor taking or recovering possession of the Premises
shall deprive Landlord of any remedies or actions against Tenant for rent, for
charges or for damages for the breach of any covenant, agreement or condition
herein contained, nor shall the bringing of any such action for rent, charges or
breach of covenant, agreement or condition, nor the resort to any other remedy
or right for the recovery of rent, charges or damages for such breach be
construed as a waiver or release of the right to insist upon the forfeiture and
to obtain possession. No re-entering or taking possession of the Premises, or
making of repairs, alterations or improvements thereto, or reletting thereof,
shall be construed as an election on the part of Landlord to terminate this
Lease unless written notice of such election be given by Landlord to Tenant.
The failure of Landlord to insist upon strict and/or prompt performance of the
terms, agreements, covenants and conditions of this Lease or any of them, and/or
the acceptance of such performance thereafter shall not
- 19 -
<PAGE>
constitute or be construed as a waiver of Landlord's right to thereafter enforce
the same strictly according to the terms thereof in the event of a continuing or
subsequent default.
31. Nonwaiver. Any failure of Tenant or Landlord to enforce any remedy
---------
allowed for the violation of any provision of this Lease shall not imply the
waiver of any such provision, even if such violation is continued or repeated,
and no express waiver shall affect any provision other than the one specified in
such waiver and only for the time and in the manner specifically stated. No
receipt of monies by Landlord from Tenant after the termination of this Lease
shall in any way (a) alter the length of the Term or of Tenant's right of
possession hereunder, or (b) after the giving of any notice, reinstate, continue
or extend the Term or affect any notice given to Tenant prior to the receipt of
such monies, it being agreed after the service of notice or, the commencement of
a suit or after final judgment for possession of the Premises, Landlord may
receive and collect any rents due, and the payment of said rents shall not waive
or affect said notice, suit or judgment.
32. Security Interest. Landlord shall have and Tenant hereby grants to
-----------------
Landlord a continuing security interest for all rent and other sums of money
becoming due hereunder from Tenant, upon all goods, wares, equipment, fixtures,
accounts, furniture and inventory and personal property of Tenant situate on the
Premises. Such property situate on the Premises shall not be removed therefrom
without the consent of Landlord until all arrearages in Minimum Rent and
Additional Rent as well as any and all other sums of money then due to Landlord
hereunder shall first have been paid and discharged. In the event of a default
under this Lease, Landlord shall have, in addition to any other remedies
provided herein or by law, all rights and remedies under the Uniform Commercial
Code, including without limitation the right to sell the property described
above at public or private sale upon five (5) days' notice to Tenant. Tenant
hereby agrees to execute such financing statements and other instruments
necessary or desirable in Landlord's discretion to perfect the security interest
hereby created. Any statutory lien for rent is not hereby waived, the express
contractual lien hereby granted being in addition to and supplementary thereto.
Notwithstanding the foregoing provisions, Tenant hereby appoints Landlord the
attorney-in-fact of Tenant for the limited purpose of executing such financing
statements.
33. Expenses of Enforcement. Tenant shall pay upon demand all
-----------------------
Landlord's reasonable costs, charges and expenses including the fees and out-of-
pocket expenses of counsel, agents and others retained by Landlord incurred in
enforcing Tenant's obligations hereunder or incurred by Landlord in any
litigation, negotiation or transaction in which the Tenant causes the Landlord
without the Landlord's fault to become involved or concerned.
34. Security Deposit. Landlord acknowledges receipt from Tenant of the
----------------
sum set forth above in Part VII. of the Schedule (the "Security Deposit") to be
retained by Landlord as security for the faithful performance and observance by
Tenant of the covenants and conditions of this Lease. Landlord shall hold the
Security Deposit in a non-interest bearing account which shall not be commingled
with operating funds of Landlord. In the event Tenant defaults under this Lease
in connection with, but not limited to, the payment of Minimum Rent or
Additional Rent of other sums payable hereunder or other performance, Landlord
may use, apply or retain the whole or any part of the Security Deposit to the
extent required for the payment of any Minimum Rent and any Additional Rent and
any other sums payable hereunder as to which Tenant is in default or on account
of any sum which Landlord may expend or may be required to expend by reason of
Tenant's default in respect of any of the covenants or conditions of this Lease.
If any portion of the Security Deposit is used, applied or retained by Landlord
for any purpose set forth above, Tenant shall, within ten (10) days after demand
therefor is made by Landlord, deposit cash with Landlord in an amount sufficient
to restore the Security Deposit to its original amount. In the event that Tenant
shall fully and faithfully comply with all of the covenants and conditions of
this Lease, the Security Deposit shall be returned to Tenant after the
Expiration Date of this Lease and surrender of the Premises to Landlord. In the
event of a sale of the
- 20 -
<PAGE>
Property to a bona fide purchaser, Landlord shall have the right to transfer to
such purchaser the aforesaid Security Deposit, and Landlord thereupon shall be
released by Tenant from all liability for the return thereof, and Tenant agrees
to look solely to the new landlord for the return thereof.
35. Brokers. Tenant represents and warrants to Landlord that Tenant has had
-------
no dealings, negotiations or consultations with respect to the Premises, the
Property or this transaction with any broker or finder except the Broker and
that no broker or finder, with the exception of the Broker, called the Premises
or the Property to Tenant's attention for lease or took any part in any
dealings, negotiations or consultations with respect to the Premises, the
Property or this Lease. In the event that any broker or finder other than the
Broker claims to have submitted the Premises or the Property to Tenant, to have
induced Tenant to lease the Premises or to have taken part in any dealings,
negotiations or consultations with respect to the Premises, the Property or this
Lease, Tenant will be responsible for and will indemnify and save Landlord
harmless from and against all costs, fees (including, without limitation,
attorneys' fees), expenses, liabilities and claims incurred or suffered by
Landlord as a result thereof.
36. Captions. The captions in this Lease are for convenience only and are
--------
not a part of this Lease and do not in any way define, limit, describe or
amplify the terms and provisions of this Lease or the scope or intent thereof.
37. Entire Agreement; Interpretation. The Lease - Schedule, Lease - Terms
--------------------------------
and any exhibits and addenda attached hereto represent the entire agreement
between the parties hereto and there are no collateral or oral agreements or
understandings. Landlord and Landlord's agents have made no representations,
agreements, conditions, warranties, understandings or promises, either oral or
written, other than as set forth herein, with respect to this Lease, the
Premises or otherwise. This Lease shall not be modified in any manner or
terminated except by an instrument in writing executed by the parties. Without
limitation of the provisions which survive the expiration or termination of this
Lease, it is expressly agreed by Landlord and Tenant that the indemnification
provisions shall survive such expiration or termination. The masculine (or
neuter) pronoun, shall include the masculine, feminine and neuter genders and
the singular number shall include the singular and plural number.
38. Definitions.
-----------
(a) The word "Landlord" is used herein to include the Landlord named
above and any subsequent Landlord of the Premises, as well as their respective
heirs, personal representatives, successors and assigns, each of whom shall have
the same rights, remedies, powers, authorities and privileges as it would have
had it originally signed this Lease as Landlord, including the right to proceed
in its own name to enter judgment by confession or otherwise, but any Landlord
of the Premises, whether or not named herein, shall have no liability hereunder
after it ceases to hold title to the Premises. If Landlord is in breach or
default with respect to Landlord's obligations or otherwise under this Lease,
Tenant shall look solely to the equity of Landlord in the Premises for the
satisfaction of Tenant's remedies. It is expressly understood and agreed that
Landlord's liability under the terms, covenants, conditions, warranties and
obligations of this Lease shall in no event exceed the loss of Landlord's equity
interest in the Premises.
(b) The word "Tenant" is used herein to include each and every one of
the persons named above as Tenant as well as their heirs, personal
representatives, successors and permitted assigns, each of whom shall be under
the same obligations, liabilities and disabilities and have only such rights,
privileges and powers as it would have possessed had it originally signed this
Lease as Tenant. Without limiting the foregoing, it is agreed that any party who
shall hereafter come within the meaning of the word "Tenant" hereunder shall be
deemed to have granted all powers with respect to confessions of judgment and
the entering of an amicable action in ejectment as fully set forth herein as
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<PAGE>
if such party had been a signatory party to this Lease. Each and every one of
the persons named above as Tenant shall be bound jointly and severally by the
terms, covenants and agreements contained herein. Any notice required or
permitted by the terms of this Lease may be given by or to any one of the
persons named above as Tenant, and shall have the same force and effect as if
given by or to all of them.
(c) The "Default Rate" as used herein shall be the rate per annum which
is five percent (5%) in excess of the Prime Rate quoted in the Money Rates
section of The Wall Street Journal.
-----------------------
39. Authority. If Tenant signs this Lease as a corporation, each of the
---------
persons executing this Lease on behalf of Tenant warrants to landlord that
Tenant is a duly authorized and existing corporation, that Tenant is qualified
to do business in the state in which the Premises are located, that all Tenant's
corporate and franchise taxes have been paid to date, that Tenant has the full
right and authority to enter into this Lease, and that each and every person
signing on behalf of Tenant is authorized to do so. Upon Landlord's request,
Tenant will provide evidence satisfactory to Landlord confirming these
representations.
40. Severability. If any provision of this Lease is found by a court of
------------
competent jurisdiction to be illegal, invalid or unenforceable, the remainder of
this Lease will not be affected, and in lieu of each provision which is found to
be illegal, invalid, or unenforceable, there will be added as a part of this
Lease a provision as similar to such illegal, invalid, or unenforceable
provision as may be possible and be legal, valid, and enforceable.
41. Waiver of Jury Trial. Landlord and Tenant waive trial by jury in any
--------------------
action, proceeding or counterclaim brought by either of them against the other
on all matters arising out of this Lease, the use and occupancy of the Premises,
the relationship of Landlord and Tenant, or claim of injury or damage. If
Landlord commences any summary proceeding for nonpayment of rent, Tenant will
not interpose (and waives the right to interpose) any counterclaim in any such
proceeding.
42. Governing Law and Venue. This Lease will be governed by the law of the
-----------------------
Commonwealth of Pennsylvania and will be construed and interpreted according to
that law. Venue on any action arising out of this Lease will be proper only in
the Court of Common Pleas of Chester County, Pennsylvania or in the Eastern
District Court for the District of Pennsylvania.
43. Time. Time is of the essence of this Lease and all of its provisions.
----
44. Recordation. Tenant shall not record this Lease, a short form of this
-----------
Lease or a memorandum of this Lease without the prior written consent of
Landlord, and any such attempted recordation shall be void and of no force or
effect and shall constitute a default hereunder; and Tenant hereby appoints
Landlord its attorney-in-fact to file any instrument to remove or discharge from
record any such recordation.
45. Inability to Perform. If Landlord is delayed or prevented from
--------------------
performing any of its obligations under this Lease by reason of any of the
following, the period of such delay or prevention shall be deemed added to the
time herein provided for the performance of any such obligation by Landlord:
strikes or other labor troubles; governmental restrictions and limitations;
civil commotion, war or other national emergency; delay in transportation;
accidents; floods; fire damage or other casualties; weather conditions; acts or
omissions of the other party of this Lease; delays by utility companies in
providing utility services and/or facilities to the Property; delays by
governmental and/or utility company authorities in issuing approvals; delays by
governmental authorities to act pursuant to requests of Landlord or Landlord's
contractors or suppliers; or concealed conditions encountered in the
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<PAGE>
performance of work below the surface of the ground or concealed or unknown
conditions in an existing structure.
[Remainder of this final page of "Lease - Terms"
is intentionally left blank]
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<PAGE>
MASTER LEASE AGREEMENT
MASTER LEASE AGREEMENT (the "Master Lease") dated September 13, 1995 by and
between COMDISCO, INC. ("Lessor") and VIROPHARMA, INCORPORATED ("Lessee").
IN CONSIDERATION of the mutual agreements described below, the parties agree as
follows (all capitalized terms are defined in Section 14.18):
1. Property Leased.
Lessor leases to Lessee all of the Equipment described on each Summary Equipment
Schedule. In the event of a conflict, the terms of the applicable Schedule
prevail over this Master Lease.
2. Term.
On the Commencement Date, Lessee will be deemed to accept the Equipment, will be
bound to its rental obligations for each item of Equipment and the term of a
Summary Equipment Schedule will begin and continue through the Initial Term and
thereafter until terminated by either party upon prior written notice received
during the Notice Period. No termination may be effective prior to the
expiration of the Initial Term.
3. Rent and Payment.
Rent is due and payable in advance on the first day of each Rent Interval at the
address specified in Lessor's invoice. Interim Rent is due and payable when
invoiced. If any payment is not made when due, Lessee will pay a Late Charge on
the overdue amount. Upon Lessee's execution of each Schedule, Lessee will pay
Lessor the Advance specified on the Schedule. The Advance will be credited
towards the final Rent payment if Lessee is not then in default. No interest
will be paid on the Advance.
4. Selection; Warranty and Disclaimer of Warranties.
4.1 Selection. Lessee acknowledges that it has selected the Equipment and
disclaims any reliance upon statements made by the Lessor, other than as set
forth in the Schedule.
4.2 Warranty and Disclaimer of Warranties. Lessor warrants to Lessee that, so
long as Lessee is not in default, Lessor will not disturb Lessee's quiet and
peaceful possession, and unrestricted use of the Equipment. To the extent
permitted by the manufacturer, Lessor assigns to Lessee during the term of the
Summary Equipment Schedule any manufacturer's warranties for the Equipment.
LESSOR MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED AS TO ANY MATTER WHATSOEVER,
INCLUDING, WITHOUT LIMITATION, THE MERCHANTABILITY OF THE EQUIPMENT OR ITS
FITNESS FOR A PARTICULAR PURPOSE. Lessor is not responsible for any liability,
claim, loss, damage or expense of any kind (including strict liability in tort)
caused by the Equipment except for any loss or damage caused by the willful
misconduct or negligent acts of Lessor. In no event is Lessor responsible for
special, incidental or consequential damages.
5. Title; Relocation or Sublease; and Assignment.
5.1 Title. Lessee holds the Equipment subject and subordinate to the rights of
the Owner, Lessor, any Assignee and any Secured Party. Lessee authorizes
Lessor, as Lessee's agent, and at Lessor's expense, to prepare, execute and file
in Lessee's name precautionary Uniform Commercial Code financing statements
showing the interest of the Owner, Lessor, and any Assignee or Secured Party in
the Equipment and to insert serial numbers in Summary Equipment Schedules as
appropriate. Lessee will, at its expense, keep the Equipment free and clear
from any liens or encumbrances of any kind (except any caused by Lessor) and
will indemnify and hold the Owner, Lessor, any Assignee and Secured Party
harmless from and against any loss caused by Lessee's failure to do so, except
where such is caused by Lessor.
5.2 Relocation or Sublease. Upon prior written notice, Lessee may relocate
Equipment to any location within the continental United States provided (i) the
Equipment will not be used by an entity exempt from federal income tax, and (ii)
all additional costs (including any administrative fees, additional taxes and
insurance coverage) are reconciled and promptly paid by Lessee.
Lessee may sublease the Equipment upon the reasonable consent of the Lessor and
the Secured Party. Such consent to sublease will be granted if: (i) Lessee
meets the relocation requirements set out above, (ii) the sublease is expressly
subject and subordinate to the terms of the Schedule, (iii) Lessee assigns its
rights in the sublease to Lessor and the Secured Party as additional collateral
and security, (iv) Lessee's obligation to maintain and insure the Equipment is
not altered, (v) all financing statements required to continue the Secured
Party's prior perfected security interest are filed, and (vi) Lessee executes
sublease documents acceptable to Lessor.
No relocation or sublease will relieve Lessee from any of its obligations under
this Master Lease and the relevant Schedule.
5.3 Assignment by Lessor. The terms and conditions of each Schedule have been
fixed by Lessor in order to permit Lessor to sell and/or assign or transfer its
interest or grant a security interest in each Schedule and/or the Equipment to a
Secured Party or Assignee. In that event, the term Lessor will mean the
Assignee and any Secured Party. However, any assignment, sale, or other
transfer by Lessor will not relieve Lessor of its obligations to Lessee and will
not materially change Lessee's duties or materially increase the burdens or
risks imposed on Lessee. The Lessee consents to and will acknowledge such
assignments in a written notice given to Lessee. Lessee also agrees that:
(a) The Secured Party will be entitled to exercise all of Lessor's rights, but
will not be obligated to perform any of the obligations of Lessor. The Secured
Party will not disturb Lessee's quiet and peaceful possession and unrestricted
use of the Equipment so long as Lessee is not in default and the Secured Party
continues to receive all Rent payable under the Schedule; and
(b) Lessee will pay all Rent and all other amounts payable to the Secured
Party, despite any defense or claim which it has against Lessor. Lessee
reserves its right to have recourse directly against Lessor for any defense or
claim;
(c) Subject to and without impairment of Lessee's leasehold rights in the
Equipment, Lessee holds the Equipment for the Secured Party to the extent of the
Secured Party's rights in that Equipment.
6. Net Lease; Taxes and Fees.
6.1 Net Lease. Each Summary Equipment Schedule constitutes a net lease.
Lessee's obligation to pay Rent and all other amounts due hereunder is absolute
and unconditional and is not subject to any abatement, reduction, set-off,
defense, counterclaim, interruption, deferment or recoupment for any reason
whatsoever.
6.2 Taxes and Fees. Lessee will pay when due or reimburse Lessor for all taxes,
fees or any other charges (together with any related interest or penalties not
arising from the negligence of Lessor) accrued for or arising during the term of
each Summary Equipment Schedule against Lessor, Lessee or the Equipment by any
governmental authority (except only Federal, state, local and franchise taxes on
the capital or the net income of Lessor). Lessor will file all personal
property tax returns for the Equipment and pay all such property taxes due.
Lessee will reimburse Lessor for property taxes within thirty (30) days of
receipt of an invoice.
7. Care, Use and Maintenance; Inspection by Lessor.
7.1 Care, Use and Maintenance. Lessee will maintain the Equipment in good
operating order and appearance, protect the Equipment from deterioration, other
than normal wear and tear, and will not use the Equipment for any purpose other
than that for which it was designed. If commercially available and considered
common business practice for each item of Equipment, Lessee will maintain in
force a standard maintenance contract with the manufacturer of the Equipment, or
another party acceptable to Lessor, and will provide Lessor with a complete copy
of that contract. If Lessee has the Equipment maintained by a party other than
the manufacturer or self maintains, Lessee agrees to pay any costs necessary for
the manufacturer to bring the Equipment to then current release, revision and
engineering change levels, and to re-certify the Equipment as eligible for
manufacturer's maintenance at the expiration of the lease term, provided
re-certification is available and is required by Lessor. The lease term will
continue upon the same terms and conditions until recertification has been
obtained.
7.2 Inspection by Lessor. Upon reasonable advance notice, Lessee, during
reasonable business hours and subject to Lessee's security requirements, will
make the Equipment and its related log and maintenance records available to
Lessor for inspection.
8. Representations and Warranties of Lessee. Lessee hereby represents, warrants
and covenants that with respect to the Master Lease and each Schedule executed
hereunder:
(a) The Lessee is a corporation duly organized and validly existing in good
standing under the laws of the jurisdiction of its incorporation, is duly
qualified to do business in each jurisdiction (including the jurisdiction where
the Equipment is, or is to be located) where its ownership or lease of property
or the conduct of its business requires such qualification, except for where
such lack of qualification would not have a material adverse effect on the
Company's business; and has full corporate power and authority to hold property
under the Master Lease and each Schedule and to enter into and perform its
obligations under the Master Lease and each Schedule.
(b) The execution and delivery by the Lessee of the Master Lease and each
Schedule and its performance thereunder have been duly authorized by all
necessary corporate action on the part of the Lessee, and the Master Lease and
each Schedule are not inconsistent with the Lessee's Articles of Incorporation
or Bylaws, do not
-1-
<PAGE>
contravene any law or governmental rule, regulation or order applicable to it,
do not and will not contravene any provision of, or constitute a default under,
any indenture, mortgage, contract or other instrument to which it is a party or
by which it is bound, and the Master Lease and each Schedule constitute legal,
valid and binding agreements of the Lessee, enforceable in accordance with their
terms, subject to the effect of applicable bankruptcy and other similar laws
affecting the rights of creditors generally and rules of law concerning
equitable remedies.
(c) There are no actions, suits, proceedings or patent claims pending or,
to the knowledge of the Lessee, threatened against or affecting the Lessee in
any court or before any governmental commission, board or authority which, if
adversely determined, will have a material adverse effect on the ability of the
Lessee to perform its obligations under the Master Lease and each Schedule.
(d) The Equipment is personal property and when subjected to use by the
Lessee will not be or become fixtures under applicable law.
(e) The Lessee has no material liabilities or obligations, absolute or
contingent (individually or in the aggregate), except the liabilities and
obligations of the Lessee as set forth in the Financial Statements and
liabilities and obligations which have occurred in the ordinary course of
business, and which have not been, in any case or in the aggregate, materially
adverse to Lessee's ongoing business.
(f) To the best of the Lessee's knowledge, the Lessee owns, possesses, has
access to, or can become licensed on reasonable terms under all patents, patent
applications, trademarks, trade names, inventions, franchises, licenses,
permits, computer software and copyrights necessary for the operations of its
business as now conducted, with no known infringement of, or conflict with, the
rights of others.
(g) All material contracts, agreements and instruments to which the Lessee
is a party are in full force and effect in all material respects, and are valid,
binding and enforceable by the Lessee in accordance with their respective terms,
subject to the effect of applicable bankruptcy and other similar laws affecting
the rights of creditors generally, and rules of law concerning equitable
remedies.
9. Delivery and Return of Equipment.
Lessee hereby assumes the full expense of transportation and in-transit
insurance to Lessee's premises and installation thereat of the Equipment. Upon
termination (by expiration or otherwise) of each Summary Equipment Schedule,
Lessee shall, pursuant to Lessor's instructions and at Lessee's full expense
(including, without limitation, expenses of transportation and in-transit
insurance), return the Equipment to Lessor in the same operating order, repair,
condition and appearance as when received, less normal depreciation and wear
and tear. Lessee shall return the Equipment to Lessor at 6111 North River Road,
Rosemont, Illinois 60018 or at such other address within the continental United
States as directed by Lessor, provided, however, that Lessee's expense shall be
limited to the cost of returning the equipment to Lessor's address as set forth
herein. During the period subsequent to receipt of a notice under Section 2,
Lessor may demonstrate the Equipment's operation in place and Lessee will supply
any of its personnel as may reasonably be required to assist in the
demonstrations.
10. Labeling.
Upon request, Lessee will mark the Equipment indicating Lessor's interest with
labels provided by Lessor. Lessee will keep all Equipment free from any other
marking or labeling which might be interpreted as a claim of ownership.
11. Indemnity.
With regard to bodily injury and property damage liability only, Lessee will
indemnify and hold Lessor, any Assignee and any Secured Party harmless from and
against any and all claims, costs, expenses, damages and liabilities, including
reasonable attorneys' fees, arising out of ownership (for such liability in
tort only), selection, possession, leasing, operation, control, use,
maintenance, delivery, return or other disposition of the Equipment during the
term of this Master Lease or until Lessee's obligations under the Master Lease
terminate. However, Lessee is not responsible to a party indemnified hereunder
for any claims, costs, expenses, damages and liabilities occasioned by the
negligent acts of such indemnified party. Lessee agrees to carry bodily injury
and property damage liability insurance during the term of the Master Lease in
amounts and against risks customarily insured against by the Lessee on
equipment owned by it. Any amounts received by Lessor under that insurance will
be credited against Lessee's obligations under this Section.
12. Risk of Loss.
Effective upon delivery and until the Equipment is returned, Lessee relieves
Lessor of responsibility for all risks of physical damage to or loss or
destruction of the Equipment. Lessee will carry casualty insurance for each item
of Equipment in an amount not less than the Casualty Value. All policies for
such insurance will name the Lessor and any Secured Party as additional insured
and as loss payee, and will provide for at least thirty (30) days prior written
notice to the Lessor of cancellation or expiration, and will insure Lessor's
interests regardless of any breach or violation by Lessee of any representation,
warranty or condition contained in such policies and will be primary without
right of contribution from any insurance effected by Lessor. Upon the execution
of any Schedule, the Lessee will furnish appropriate evidence of such insurance
acceptable to Lessor.
Lessee will promptly repair any damaged item of Equipment unless such Equipment
has suffered a Casualty Loss. Within fifteen (15) days of a Casualty Loss,
Lessee will provide written notice of that loss to Lessor and Lessee will, at
Lessee's option, either (a) replace the item of Equipment with Like Equipment
and marketable title to the Like Equipment will automatically vest in Lessor or
(b) pay the Casualty Value and after that payment and the payment of all other
amounts due and owing with respect to that item of Equipment, Lessee's
obligation to pay further Rent for the item of Equipment will cease.
13. Default, Remedies and Mitigation.
13.1 Default. The occurrence of any one or more of the following Events of
Default constitutes a default under a Summary Equipment Schedule:
(a) Lessee's failure to pay Rent or other amounts payable by Lessee when
due if that failure continues for five (5) business days after written notice;
or
(b) Lessee's failure to perform any other term or condition of the
Schedule or the material inaccuracy of any representation or warranty made by
the Lessee in the Schedule or in any document or certificate furnished to the
Lessor hereunder if that failure or inaccuracy continues for ten (10) business
days after written notice; or
(c) An assignment by Lessee for the benefit of its creditors, the
failure by Lessee to pay its debts when due, the insolvency of Lessee, the
filing by Lessee or the filing against Lessee of any petition under any
bankruptcy or insolvency law or for the appointment of a trustee or other
officer with similar powers, the adjudication of Lessee as insolvent, the
liquidation of Lessee, or the taking of any action for the purpose of the
foregoing; or
(d) The occurrence of an Event of Default under any Schedule, Summary
Equipment Schedule or other agreement between Lessee and Lessor or its Assignee
or Secured Party.
13.2 Remedies. Upon the occurrence of any of the above Events of Default,
Lessor, at its option, may:
(a) enforce Lessee's performance of the provisions of the applicable
Schedule by appropriate court action in law or in equity;
(b) recover from Lessee any damages and or expenses, including Default
Costs;
(c) with notice and demand, recover all sums due and accelerate and
recover the present value of the remaining payment stream of all Rent due under
the defaulted Schedule (discounted at the same rate of interest at which such
defaulted Schedule was discounted with a Secured Party plus any prepayment fees
charged to Lessor by the Secured Party or, if there is no Secured Party, then
discounted at 6%) together with all Rent and other amounts currently due as
liquidated damages and not as a penalty;
(d) with notice and process of law and in compliance with Lessee's
security requirements, Lessor may enter on Lessee's premises to remove and
repossess the Equipment without being liable to Lessee for damages due to the
repossession, except those resulting from Lessor's, its assignees', agents' or
representatives' negligence; and
(e) pursue any other remedy permitted by law or equity.
The above remedies, in Lessor's discretion and to the extent permitted by
law, are cumulative and may be exercised successively or concurrently.
13.3 Mitigation. Upon return of the Equipment pursuant to the terms of Section
13.2, Lessor will use its best efforts in accordance with its normal business
procedures (and without obligation to give any priority to such Equipment) to
mitigate Lessor's damages below. EXCEPT AS SET FORTH IN THIS SECTION, LESSEE
HEREBY WAIVES ANY RIGHTS NOW OR HEREAFTER CONFERRED BY STATUTE OR OTHERWISE
WHICH MAY REQUIRE LESSOR TO MITIGATE ITS DAMAGES OR MODIFY ANY OF LESSOR'S
RIGHTS OR REMEDIES STATED HEREIN. Lessor may sell, lease or otherwise dispose of
all or any part of the Equipment at a public or private sale for cash or credit
with the privilege of purchasing the Equipment. The proceeds from any sale,
lease or other disposition of the Equipment are defined as either:
(a) if sold or otherwise disposed of, the cash proceeds less the Fair
Market Value of the Equipment at the expiration of the initial Term less the
Default Costs; or
(b) if leased, the present value (discounted at 3 percent (3%) over the
U.S. Treasury Notes of comparable maturity to the term of the re-lease) of the
rentals for a term not to exceed the Initial Term, less the Default Costs.
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<PAGE>
Any proceeds will be applied against liquidated damages and any other sums due
to Lessor from Lessee. However, Lessee is liable to Lessor for, and Lessor may
recover, the amount by which the proceeds are less than the liquidated damages
and other sums due to Lessor from Lessee.
14. Additional Provisions.
14.1 Board Attendance. One representative of Lessor will have the right to
attend Lessee's corporate Board of Directors meetings and Lessee will give
Lessor reasonable notice in advance of any special Board of Directors meeting,
which notice will provide an agenda of the subject matter to be discussed at
such board meeting. Lessee will provide Lessor with a certified copy of the
minutes of each Board of Directors meeting within thirty (30) days following the
date of such meeting held during the term of this Master Lease.
14.2 Financial Statements. As soon as practicable at the end of each month (and
in any event within thirty (30) days), Lessee will provide to Lessor the same
information which Lessee provides to its Board of Directors, but which will
include not less than a monthly income statement, balance sheet and statement of
cash flows prepared in accordance with generally accepted accounting principles,
consistently applied (the "Financial Statements"). As soon as practicable at
the end of each fiscal year, Lessee will provide to Lessor audited Financial
Statements setting forth in comparative form the corresponding figures for the
fiscal year (and in any event within ninety (90) days), and accompanied by an
audit report and opinion of the independent certified public accountants
selected by Lessee. Lessee will promptly furnish to Lessor any additional
information (including, but not limited to, tax returns, income statements,
balance sheets and names of principal creditors) as Lessor reasonably believes
necessary to evaluate Lessee's continuing ability to meet financial obligations.
After the effective date of the initial registration statement covering a public
offering of Lessee's securities, the term "Financial Statements" will be deemed
to refer to only those statements required by the Securities and Exchange
Commission.
14.3 Obligation to Lease Additional Equipment. Upon notice to Lessee, Lessor
will not be obligated to lease any Equipment which would have a Commencement
Date after said notice if: (i) Lessee is in default under this Master Lease or
any Schedule; (ii) Lessee is in default under any loan agreement, the result of
which would allow the lender or any secured party to demand immediate payment of
any material indebtedness; (iii) there is a material adverse change in Lessee's
credit standing; or (iv) Lessor determines (in reasonable good faith) that
Lessee will be unable to perform its obligations under this Master Lease or any
Schedule.
14.4 Merger and Sale Provisions. Lessee will notify Lessor of any proposed
Merger at least sixty (60) days prior to the closing date. Lessor may, in its
discretion, either (i) consent to the assignment of the Master Lease and all
relevant Schedules to the successor entity, or (ii) terminate the Lease and all
relevant Schedules. If Lessor elects to consent to the assignment, Lessee and
its successor will sign the assignment documentation provided by Lessor. If
Lessor elects to terminate the Master Lease and all relevant Schedules, then
Lessee will pay Lessor all amounts then due and owing and a termination fee
equal to the present value (discounted at 6%) of the remaining Rent for the
balance of the Initial Term(s) of all Schedules, and will return the Equipment
in accordance with Section 9. Lessor hereby consents to any Merger in which the
acquiring entity has a Moody's Bond Rating of BA3 or better or a commercially
acceptable equivalent measure of creditworthiness as reasonably determined by
Lessor.
14.5 Entire Agreement. This Master Lease and associated Schedules and Summary
Equipment Schedules supersede all other oral or written agreements or
understandings between the parties concerning the Equipment including, for
example, purchase orders. ANY AMENDMENT OF THIS MASTER LEASE OR A SCHEDULE, MAY
ONLY BE ACCOMPLISHED BY A WRITING SIGNED BY THE PARTY AGAINST WHOM THE AMENDMENT
IS SOUGHT TO BE ENFORCED.
14.6 No Waiver. No action taken by Lessor or Lessee will be deemed to
constitute a waiver of compliance with any representation, warranty or covenant
contained in this Master Lease or a Schedule. The waiver by Lessor or Lessee of
a breach of any provision of this Master Lease or a Schedule will not operate or
be construed as a waiver of any subsequent breach.
14.7 Binding Nature. Each Schedule is binding upon, and inures to the benefit
of Lessor and its assigns. LESSEE MAY NOT ASSIGN ITS RIGHTS OR OBLIGATIONS.
14.8 Survival of Obligations. All agreements, obligations including, but not
limited to those arising under Section 6.2, representations and warranties
contained in this Master Lease, any Schedule, Summary Equipment Schedule or in
any document delivered in connection with those agreements are for the benefit
of Lessor and any Assignee or Secured Party and survive the execution, delivery,
expiration or termination of this Master Lease.
14.9 Notices. Any notice, request or other communication to either party by the
other will be given in writing and deemed received upon the earlier of actual
receipt or three days after mailing if mailed postage prepaid by regular or
airmail to Lessor (to the attention of "the Comdisco Venture Group") or Lessee,
at the address set out in the Schedule or, one day after it is sent by courier
or on the same day as sent via facsimile transmission, provided that the
original is sent by personal delivery or mail by the receiving party.
14.10 Applicable Law. THIS MASTER LEASE HAS BEEN, AND EACH SCHEDULE WILL HAVE
BEEN MADE, EXECUTED AND DELIVERED IN THE STATE OF ILLINOIS AND WILL BE GOVERNED
AND CONSTRUED FOR ALL PURPOSES IN ACCORDANCE WITH THE LAWS OF THE STATE OF
ILLINOIS WITHOUT GIVING EFFECT TO CONFLICT OF LAW PROVISIONS. NO RIGHTS OR
REMEDIES REFERRED TO IN ARTICLE 2A OF THE UNIFORM COMMERCIAL CODE WILL BE
CONFERRED ON LESSEE UNLESS EXPRESSLY GRANTED IN THIS MASTER LEASE OR A SCHEDULE.
14.11 Severability. If any one or more of the provisions of this Master Lease
or any Schedule is for any reason held invalid, illegal or unenforceable, the
remaining provisions of this Master Lease and any such Schedule will be
unimpaired, and the invalid, illegal or unenforceable provision replaced by a
mutually acceptable valid, legal and enforceable provision that is closest to
the original intention of the parties.
14.12 Counterparts. This Master Lease and any Schedule may be executed in any
number of counterparts, each of which will be deemed an original, but all such
counterparts together constitute one and the same instrument. If Lessor grants
a security interest in all or any part of a Schedule, the Equipment or sums
payable thereunder, only that counterpart Schedule marked "Secured Party's
Original" can transfer Lessor's rights and all other counterparts will be marked
"Duplicate."
14.13 Licensed Products. Lessee will obtain no title to Licensed Products which
will at all times remain the property of the owner of the Licensed Products. A
license from the owner may be required and it is Lessee's responsibility to
obtain any required license before the use of the Licensed Products. Lessee
agrees to treat the Licensed Products as confidential information of the owner,
to observe all copyright restrictions, and not to reproduce or sell the Licensed
Products.
14.14 Secretary's Certificate. Lessee will, upon execution of this Master
Lease, provide Lessor with a secretary's certificate of incumbency and
authority.
14.15 Electronic Communications. Each of the parties may communicate with the
other by electronic means under mutually agreeable terms.
14.16 Landlord/Mortgagee Waiver. Lessee agrees to provide Lessor with a
Landlord/Mortgagee Waiver with respect to the Equipment. Such waiver shall be
in a form satisfactory to Lessor.
14.17 Equipment Procurement Charges/Progress Payments. Lessee hereby agrees
that Lessor shall not, by virtue of its entering into this Master Lease, be
required to remit any payments to any manufacturer or other third party until
Lessee accepts the Equipment subject to this Master Lease.
14.18 Definitions.
Advance - means the amount due to Lessor by Lessee upon Lessee's execution of
- -------
each Schedule.
Assignee - means an entity to whom Lessor has sold or assigned its rights as
- --------
owner and Lessor of Equipment.
Casualty Loss - means the irreparable loss or destruction of Equipment.
- -------------
Casualty Value - means the greater of the aggregate Rent remaining to be paid
- --------------
for the balance of the lease term or the Fair Market Value of the Equipment
immediately prior to the Casualty Loss. However, if a Casualty Value Table is
attached to the relevant Schedule its terms will control.
Commencement Date - is defined in each Schedule.
- -----------------
Default Costs - means reasonable attorney's fees and remarketing costs
- -------------
resulting from a Lessee default or Lessor's enforcement of its remedies.
Delivery Date - means date of delivery of Inventory Equipment to Lessee's
- -------------
address.
Equipment - means the property described on a Summary Equipment Schedule and any
- ---------
replacement for that property required or permitted by this Master Lease or a
Schedule.
Event of Default - means the events described in Subsection 13.1.
- ----------------
Fair Market Value - means the aggregate amount which would be obtainable in an
- -----------------
arm's-length transaction between an informed and willing buyer/user and an
informed and willing seller under no compulsion to sell.
Initial Term - means the period of time beginning on the first day of the first
- ------------
full Rent Interval following the Commencement Date for all items of Equipment
and continuing for the number of Rent Intervals indicated on a Schedule.
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<PAGE>
Interim Rent - means the pro-rata portion of Rent due for the period from the
- ------------
Commencement Date through but not including the first day of the first full Rent
interval included in the Initial Term.
Late Charge - means the lesser of five percent (5%) of the payment due or the
- -----------
maximum amount permitted by the law of the state where the Equipment is located.
Licensed Products - means any software or other licensed products attached to
- -----------------
the Equipment.
Like Equipment - means replacement Equipment which is lien free and of the same
- --------------
model, type, configuration and manufacture as Equipment.
Merger - means any consolidation or merger of the Lessee with or into any other
- ------
corporation or entity, any sale or conveyance of all or substantially all of the
assets of the Lessee to any other person or entity or any stock acquisition of
the Lessee by any other person or entity in which Lessee is not the surviving
entity.
Notice Period - means not less than ninety (90) days nor more than twelve (12)
- -------------
months prior to the expiration of the lease term.
Owner - means the owner of Equipment.
- -----
Rent - means the rent Lessee will pay for each item of Equipment expressed in a
- ----
Summary Equipment Schedule either as a specific amount or an amount equal to the
amount which Lessor pays for an item of Equipment multiplied by a lease rate
factor plus all other amounts due to Lessor under this Master Lease or a
Schedule.
Rent Interval - means a full calendar month or quarter as indicated on a
- -------------
Schedule.
Schedule - means either an Equipment Schedule or a Licensed Products Schedule
- --------
which incorporates all of the terms and conditions of this Master Lease.
Secured Party - means an entity to whom Lessor has granted a security interest
- -------------
for the purpose of securing a loan.
Summary Equipment Schedule - means a certificate provided by Lessor summarizing
- --------------------------
all of the Equipment for which Lessor has received Lessee approved vendor
invoices, purchase documents and/or evidence of delivery during a calendar
quarter which will incorporate all of the terms and conditions of the related
Schedule and this Master Lease and will constitute a separate lease for the
equipment leased thereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Master Lease on or as
of the day and year first above written.
VIROPHARMA, INC. COMDISCO, INC.,
as Lessee as Lessor
By: /s/Claude H. Nash By: [SIGNATURE APPEARS HERE]
--------------------------------- --------------------------------
Title: President & CEO Title: [TITLE APPEARS HERE]
------------------------------ -----------------------------
g:jap\venture\viromstr.doc
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<PAGE>
COMDISCO(R)
May 10, 1996
Mr. Vincent J. Milano
Executive Director of Finance
ViroPharma, Inc.
76 Great Valley Parkway
Malvern, PA 19355
Re: Equipment Schedules VL-1, VL-2, and VL-3 to the Master Lease Agreement
all dated as of September 13, 1995 between Comdisco, Inc. ("Lessor")
and ViroPharma, Inc. ("Lessee"), collectively the Lease.
Dear Vinnie:
This letter is to confirm our agreement whereby upon execution of this Amendment
Letter the terms and conditions of the above-referenced Lease are hereby
modified as follows:
1. The total aggregate Lessor's Equipment Cost allowable under VL-3 shall be
decreased by $100,000.00 from $200,000.00 to $100,000.00; and
2. The total aggregate Lessor's Equipment Cost allowable under VL-1 shall be
increased by $50,000.00 from $408,904.00 to $458,904.00; and
3. The total aggregate Lessor's Equipment Cost allowable under VL-2 shall be
increased by $50,000.00 from $50,000.00 to $100,000.00.
Unless otherwise defined herein, all defined terms shall have the same meaning
as set forth in the Lease. Except as specifically set forth above, all other
terms and conditions of the Lease shall remain in full force and effect.
Please execute this Letter Amendment where indicated and return it to my
attention at your earliest convenience. If you have any questions, please call
me at (617) 630-5515.
Sincerely, Agreed and Accepted:
ViroPharma, Inc.
/s/Deborah R. Smith By: /s/Vincent J. Milano
Deborah R. Smith
Regional Portfolio Manager Title: Executive Director, Finance
Date: May 13, 1996
cc: Carrie Loepke; Comdisco Ventures
Comdisco Ventures One Newton Executive Park Telephone: Facsimile:
Suite 302 617.630.5515 617.630.5599
Newton, MA 02162-1417
<PAGE>
EQUIPMENT SCHEDULE VL-1
DATED AS OF SEPTEMBER 13, 1995
TO MASTER LEASE AGREEMENT
DATED AS OF SEPTEMBER 13, 1995 (THE "MASTER LEASE")
LESSEE: VIROPHARMA, INC. LESSOR: COMDISCO, INC.
Admin. Contact/Phone No.: Address for all Notices:
- ------------------------ -----------------------
Mark A. McKinlay
(610) 651-0200 ext. 3103 6111 North River Road
Rosemont, Illinois 60018
Attn.: Venture Group
Address for Notices:
- -------------------
76 Great Valley Parkway
Malvern, PA 19355
Attn.: Carolyn Vandeweghe
Central Billing Location: Rent Interval: Monthly
- ------------------------ -------------
Same as Above
Attn.:
Lessee Reference No.: 01-001
----------------
(24 digits maximum)
Location of Equipment: Initial Term: 48 months
- --------------------- ------------ -----------
Same as Above (Number of Rent Intervals)
Lease Rate Factor: 2.47%
----------------- ------
Attn:
EQUIPMENT (as defined below): Advance: $10,099.93
------- ---------
Laboratory and Scientific Equipment ("Equipment") specifically approved by
Lessor, which shall be delivered to and accepted by Lessee during the
period October 25, 1995 through October 25, 1996 ("Equipment Delivery
Period"), for which Lessor receives vendor invoices approved for payment,
up to an aggregate purchase price of $408,904.00 ("Commitment Amount");
excluding custom use equipment, leasehold improvements, installation costs
and delivery costs, rolling stock, special tooling, "stand-alone" software,
application software bundled into computer hardware, hand held items, molds
and fungible items.
<PAGE>
1. Equipment Purchase
This Schedule contemplates Lessor's acquisition of Equipment for lease to
Lessee, either by one of the first three categories listed below or by providing
Lessee with Equipment from the fourth category, in a value up to the Commitment
Amount referred to on the face of this Schedule. If the Equipment acquired is of
category (i), (ii) or (iii) below, the effectiveness of this Schedule as it
relates to those items of Equipment is contingent upon Lessee's acknowledgment
at the time Lessor acquires the Equipment that Lessee has either received or
approved the relevant purchase documentation between vendor and Lessor for that
Equipment.
Lessor will finance only the acquisition of individual items of Equipment
with a cost to Lessor of more than $500.00.
(i) NEW ON-ORDER EQUIPMENT. Lessor will purchase new Equipment which is
specifically approved by Lessor.
(ii) SALE-LEASEBACK EQUIPMENT. Any in-place Equipment installed at
Lessee's site and to which Lessee has clear title and ownership may
be considered by Lessor for inclusion under this Lease (the "Sale-
Leaseback Transaction"). Any request for a Sale-Leaseback
Transaction must be submitted to Lessor in writing (along with
accompanying evidence of Lessee's Equipment ownership satisfactory
to Lessor for all Equipment submitted) no later than December 8,
1995*. Lessor will not perform a Sale-Leaseback Transaction for any
request or accompanying Equipment ownership documents which arrive
after the date marked above by an asterisk (*). Further, any sale-
leaseback Equipment will be placed on lease subject to: (1) Lessor
prior approval of the Equipment; and (2) if approved, at Lessor's
actual net appraised Equipment value pursuant to the schedule below:
ORIGINAL EQUIPMENT INVOICE PERCENT OF ORIGINAL MANUFACTURER'S
DATE NET EQUIPMENT COST PAID BY LESSOR
-------------------------- ----------------------------------
Between 8/23/95 and 11/22/95 100%
Between 6/23/95 and 8/22/95 80%
Between 3/23/95 and 6/22/95 70%
Between 12/23/94 and 3/22/95 65%
Between 9/23/94 and 12/22/94 60%
(iii) USED ON-ORDER EQUIPMENT. Lessor will purchase used Equipment which
is obtained from a third party by Lessee for its use subject to
Lessor's prior approval of the Equipment and at Lessor's appraised
value for such used Equipment.
(iv) INVENTORY EQUIPMENT. Upon Lessee's request, Lessor may supply new or
used Equipment from its inventory at rates provided by Lessor.
2. Commencement Date
The Commencement Date for each item of new on-order or used on-order
Equipment will be the date Lessee approves the vendor invoice. The Commencement
Date for sale-leaseback Equipment shall be the date Lessor tenders the purchase
price, and the Commencement Date for inventory Equipment shall be the Delivery
Date. Lessor will summarize all approved invoices, purchase documentation and
evidence of delivery, as applicable, received in the same calendar quarter into
a Summary Equipment Schedule in the form attached to this Schedule as Exhibit 1,
and the Initial Term will begin the first day of the calendar quarter
thereafter. Each Summary Equipment Schedule will contain the Equipment location,
description, serial number(s) and cost and will incorporate the terms and
conditions of the Master Lease and this Schedule and will constitute a separate
lease.
<PAGE>
3. Option to Extend
So long as no Event of Default has occurred and is continuing hereunder, and
upon written notice no earlier than twelve (12) months and no later than ninety
(90) days prior to the expiration of the Initial Term of a Summary Equipment
Schedule, Lessee will have the right to extend the Initial Term of such Summary
Equipment Schedule for a period of one (1) year. In such event, the rent to be
paid during said extended period shall be mutually agreed upon and if the
parties cannot mutually agree, then the Summary Equipment Schedule shall
continue in full force and effect pursuant to the existing terms and conditions
until terminated in accordance with its terms. The Summary Equipment Schedule
will continue in effect following said extended period until terminated by
either party upon not less than ninety (90) days prior written notice, which
notice shall be effective as of the date of receipt.
4. Purchase Option
So long as no Event of Default has occurred and is continuing hereunder, and
upon written notice no earlier than twelve (12) months and no later than ninety
(90) days prior to the expiration of the Initial Term or the extended term of
the applicable Summary Equipment Schedule, Lessee will have the option at the
expiration of the Initial Term of the Summary Equipment Schedule to purchase
all, but not less than all, of the Equipment listed therein for a purchase price
not to exceed 20% of Lessor's original cost or the Fair Market Value of
Equipment and upon terms and conditions to be mutually agreed upon by the
parties following Lessee's written notice, plus any taxes applicable at time of
purchase. Said purchase price shall be paid to Lessor at least thirty (30) days
before the expiration date of the Initial Term or extended term. Title to the
Equipment shall automatically pass to Lessee upon payment in full of the
purchase price but, in no event, earlier than the expiration of the fixed
Initial Term or extended term, if applicable. If the parties are unable to agree
on the purchase price or the terms and conditions with respect to said purchase,
then the Summary Equipment Schedule with respect to this Equipment shall remain
in full force and effect. Notwithstanding the exercise by Lessee of this option
and payment of the purchase price, until all obligations under the applicable
Summary Equipment Schedule have been fulfilled, it is agreed and understood that
Lessor shall retain a purchase money security interest in the Equipment listed
therein and the Summary Equipment Schedule shall constitute a Security Agreement
under the Uniform Commercial Code of the state in which the Equipment is
located.
5. Special Terms
The terms and conditions of the Lease as they pertain to this Schedule are
hereby modified and amended as follows:
(i) Section 5.2, "Relocation or Sublease."
In the second paragraph, clause (vi), insert the word
"reasonably" before "acceptable."
(ii) Section 7.1, "Care, Use and Maintenance."
Insert the following between the second and third sentences:
"Lessee may self-maintain items of Equipment which have
a purchase price under $50,000."
(iii) Section 11, "Indemnity"
In the second sentence, after "negligent," insert "or willful"
before the word "acts."
(iv) Section 12, "Risk of Loss"
<PAGE>
In the third sentence, delete the phrase "regardless of any
breach or violation by Lessee of any representation, warranty or
condition contained in such policies".
(v) Section 14.1 "Board Attendance"
Insert the following sentence between the first and second
sentences: "Upon and after such time as the Company has a class of
equity securities registered under the Securities Exchange Act of
1934, as amended, Lessor's right to attend such meetings shall
cease."
Master Lease: This Schedule is issued pursuant to the Lease identified on
page 1 of this Schedule. All of the terms and conditions of the Lease are
incorporated in and made a part of this Schedule as if they were expressly set
forth in this Schedule. The parties hereby reaffirm all of the terms and
conditions of the Lease (including, without limitation, the representations and
warranties set forth in Section 8) except as modified herein by this Schedule.
This Schedule may not be amended or rescinded except by a writing signed by both
parties.
VIROPHARMA, INC. COMDISCO, INC.
as Lessee as Lessor
By: /s/ Claude H. Nash By: [SIGNATURE APPEARS HERE]
---------------------------- ---------------------------
Title: President & CEO Title: [TITLE APPEARS HERE]
------------------------- ------------------------
Date: 10-25-95 Date: 11/3/95
-------------------------- -------------------------
JAP/10/26/95
g:JAP\venture\virol.doc
<PAGE>
18 SLXXXXX-XX
EXHIBIT 1
SUMMARY EQUIPMENT SCHEDULE
--------------------------
This Summary Equipment Schedule dated XXXX is executed pursuant to
Equipment Schedule No. X to the Master Lease Agreement dated XXXX between
Comdisco, Inc. ("Lessor") and XXXX ("Lessee"). All of the terms, conditions,
representations and warranties of the Master Lease Agreement and Equipment
Schedule No. X are incorporated herein and made a part hereof, and this Summary
Equipment Schedule constitutes a Schedule for the Equipment on the attached
invoices.
1. For Period Beginning: And Ending:
-------------------- ----------
2. Initial Term Starts on: Initial Term:
---------------------- ------------
(Number of Rent Intervals)
3. Total Summary Equipment Cost:
----------------------------
4. Lease Rate Factor:
-----------------
5. Rent:
----
6. Acceptance Doc Type:
-------------------
<PAGE>
EQUIPMENT SCHEDULE VL-2
DATED AS OF SEPTEMBER 13, 1995
TO MASTER LEASE AGREEMENT
DATED AS OF SEPTEMBER 13, 1995 (THE "MASTER LEASE")
LESSEE: VIROPHARMA, INC. LESSOR: COMDISCO, INC.
Admin. Contact/Phone No.: Address for all Notices:
- ------------------------ -----------------------
Mark A. McKinlay
(610) 651-0200 ext. 3103 6111 North River Road
Rosemont, Illinois 60018
Attn.: Venture Group
Address for Notices:
- -------------------
76 Great Valley Parkway
Malvern, Pa 19355
Attn.: Carolyn Vandeweghe
Central Billing Location: Rent Interval: Monthly
- ------------------------ -------------
Same as Above
Attn.:
Lessee Reference No.: 02-001
----------
(24 digits maximum)
Location of Equipment: Initial Term: 42 months
- --------------------- ------------ ---------
Same as Above (Number of Rent Intervals)
Lease Rate Factor: 2.753%
----------------- ------
Attn.:
EQUIPMENT (as defined below): Advance: $1,376.50
--------
Computer and General Office Equipment ("Equipment") specifically
approved by Lessor, which shall be delivered to and accepted by Lessee
during the period October 25, 1995 through October 25, 1996 ("Equipment
Delivery Period"), for which Lessor receives vendor invoices approved
for payment, up to an aggregate purchase price of $50,000.00
("Commitment Amount"); excluding custom use equipment, leasehold
improvements, installation costs and delivery cost, rolling stock,
special tooling, "stand-alone" software, application software bundled
into computer hardware, hand held items, molds and fungible items.
<PAGE>
1. Equipment Purchase
This Schedule contemplates Lessor's acquisition of Equipment for lease
to Lessee, either by one of the first three categories listed below or by
providing Lessee with Equipment from the fourth category, in a value up to the
Commitment Amount referred to on the face of this Schedule. If the Equipment
acquired is of category (i), (ii) or (iii) below, the effectiveness of this
Schedule as it relates to those items of Equipment is contingent upon Lessee's
acknowledgment at the time Lessor acquires the Equipment that Lessee has either
received or approved the relevant purchase documentation between vendor and
Lessor for that Equipment.
Lessor will finance only the acquisition of individual items of
Equipment with a cost to Lessor of more than $500.00.
(i) NEW ON-ORDER EQUIPMENT. Lessor will purchase new Equipment which
is specifically approved by Lessor.
(ii) SALE-LEASEBACK EQUIPMENT. Any in-place Equipment installed at
Lessee's site and to which Lessee has clear title and ownership
may be considered by Lessor for inclusion under this Lease (the
"Sale-Leaseback Transaction"). Any request for a Sale-Leaseback
Transaction must be submitted to Lessor in writing (along with
accompanying evidence of Lessee's Equipment ownership
satisfactory to Lessor for all Equipment submitted) no later than
December 8, 1995*. Lessor will not perform a Sale-Leaseback
Transaction for any request or accompanying Equipment ownership
documents which arrive after the date marked above by an asterisk
(*). Further, any sale-leaseback Equipment will be placed on
lease subject to: (1) Lessor prior approval of the Equipment; and
(2) if approved, at Lessor's actual net appraised Equipment value
pursuant to the schedule below:
ORIGINAL EQUIPMENT INVOICE PERCENT OF ORIGINAL MANUFACTURER'S
DATE NET EQUIPMENT COST PAID BY LESSOR
-------------------------- ----------------------------------
[S] [C]
Between 8/23/95 and 11/22/95 100%
Between 6/23/95 and 8/22/95 80%
Between 3/23/95 and 6/22/95 70%
Between 12/23/94 and 3/22/95 65%
Between 9/23/94 and 12/22/94 60%
(iii) USED ON-ORDER EQUIPMENT. Lessor will purchase used Equipment
which is obtained from a third party by Lessee for its use
subject to Lessor's prior approval of the Equipment and at
Lessor's appraised value for such used Equipment.
(iv) INVENTORY EQUIPMENT. Upon Lessee's request, Lessor may supply
new or used Equipment from its inventory at rates provided by
Lessor.
2. Commencement Date
The Commencement Date for each item of new on-order or used on-order
Equipment will be the date Lessee approves the vendor invoice. The Commencement
Date for sale-leaseback Equipment shall be the date Lessor tenders the purchase
price, and the Commencement Date for inventory Equipment shall be the Delivery
Date. Lessor will summarize all approved invoices, purchase documentation and
evidence of delivery, as applicable, received in the same calendar quarter into
a Summary Equipment Schedule in the form attached to this Schedule as Exhibit 1,
and the Initial Term will begin the first day of the calendar quarter
thereafter. Each Summary Equipment Schedule will contain the Equipment location,
description, serial number(s) and cost and will incorporate the terms and
conditions of the Master Lease and this Schedule and will constitute a separate
lease.
<PAGE>
3. Option to Extend
So long as no Event of Default has occurred and is continuing hereunder,
and upon written notice no earlier than twelve (12) months and no later than
ninety (90) days prior to the expiration of the Initial Term of a Summary
Equipment Schedule, Lessee will have the right to extend the Initial Term of
such Summary Equipment Schedule for a period of one (1) year. In such event,
the rent to be paid during said extended period shall be mutually agreed upon
and if the parties cannot mutually agree, then the Summary Equipment Schedule
shall continue in full force and effect pursuant to the existing terms and
conditions until terminated in accordance with its terms. The Summary Equipment
Schedule will continue in effect following said extended period until terminated
by either party upon not less than ninety (90) days prior written notice, which
notice shall be effective as of the date of receipt.
4. Purchase Option
So long as no Event of Default has occurred and is continuing hereunder,
and upon written notice no earlier than twelve (12) months and no later than
ninety (90) days prior to the expiration of the Initial Term or the extended
term of the applicable Summary Equipment Schedule, Lessee will have the option
at the expiration of the Initial Term of the Summary Equipment Schedule to
purchase all, but not less than all, of the Equipment listed therein for a
purchase price not to exceed 20% of Lessor's original cost of Equipment or the
Fair Market Value and upon terms and conditions to be mutually agreed upon by
the parties following Lessee's written notice, plus any taxes applicable at time
of purchase. Said purchase price shall be paid to Lessor at least thirty (30)
days before the expiration date of the Initial Term or extended term. Title to
the Equipment shall automatically pass to Lessee upon payment in full of the
purchase price but, in no event, earlier than the expiration of the fixed
Initial Term or extended term, if applicable. If the parties are unable to agree
on the purchase price or the terms and conditions with respect to said purchase,
then the Summary Equipment Schedule with respect to this Equipment shall remain
in full force and effect. Notwithstanding the exercise by Lessee of this option
and payment of the purchase price, until all obligations under the applicable
Summary Equipment Schedule have been fulfilled, it is agreed and understood that
Lessor shall retain a purchase money security interest in the Equipment listed
therein and the Summary Equipment Schedule shall constitute a Security Agreement
under the Uniform Commercial Code of the state in which the Equipment is
located.
5. Special Terms
The terms and conditions of the Lease as they pertain to this Schedule are
hereby modified and amended as follows:
(i) Section 5.2, "Relocation or Sublease."
In the second paragraph, clause (vi), insert the word
"reasonably" before "acceptable."
(ii) Section 7.1, "Care, Use and Maintenance."
Insert the following between the second and third sentences:
"Lessee may self-maintain items of Equipment which
have a purchase price under $50,000."
(iii) Section 11, "Indemnity"
In the second sentence, after "negligent," insert "or
willful" before the word "acts."
<PAGE>
(iv) Section 12, "Risk of Loss"
In the third sentence, delete the phrase "regardless of any
breach or violation by Lessee of any representation, warranty or
condition contained in such policies".
(v) Section 14.1 "Board Attendance"
Insert the following sentence between the first and second sentences: "Upon and
after such time as the Company has a class of equity securities registered under
the Securities Exchange Act of 1934, as amended, Lessor's right to attend such
meetings shall cease."
Master Lease: This Schedule is issued pursuant to the Lease identified on page
1 of this Schedule. All of the terms and conditions of the Lease are
incorporated in and made a part of this Schedule as if they were expressly set
forth in this Schedule. The parties hereby reaffirm all of the terms and
conditions of the Lease (including, without limitation, the representations and
warranties set forth in Section 8) except as modified herein by this Schedule.
This Schedule may not be amended or rescinded except by a writing signed by both
parties.
VIROPHARMA, INC. COMDISCO, INC.
as Lessee as Lessor
By: /s/ [SIGNATURE APPEAR HERE] By: /s/ [SIGNATURE APPEAR HERE]
------------------------------- -------------------------------
Title: President & CEO Title: [JOB TITLE APPEARS HERE]
---------------------------- ----------------------------
Date: 10-25-95 Date: [DATE APPEARS HERE]
----------------------------- -----------------------------
<PAGE>
18 SLXXXXX-XX
EXHIBIT 1
SUMMARY EQUIPMENT SCHEDULE
--------------------------
This Summary Equipment Schedule dated XXXX is executed pursuant to
Equipment Schedule No. X to the Master Lease Agreement dated XXXX between
Comdisco, Inc. ("Lessor") and XXXX ("Lessee"). All of the terms, conditions,
representations and warranties of the Master Lease Agreement and Equipment
Schedule No. X are incorporated herein and made a part hereof, and this Summary
Equipment Schedule constitutes a Schedule for the Equipment on the attached
invoices.
1. For Period Beginning: And Ending:
-------------------- ----------
2. Initial Term Starts on: Initial Term:
---------------------- ------------
(Number of Rent Intervals)
3. Total Summary Equipment Cost:
----------------------------
4. Lease Rate Factor:
-----------------
5. Rent:
----
6. Acceptance Doc Type:
-------------------
<PAGE>
EQUIPMENT SCHEDULE VL-3
DATED AS OF SEPTEMBER 13, 1995
TO MASTER LEASE AGREEMENT
DATED AS OF SEPTEMBER 13, 1995 (THE "MASTER LEASE")
LESSEE: VIROPHARMA, INC. LESSOR: COMDISCO, INC.
Admin. Contact/Phone No.: Address for all Notices:
- ------------------------ -----------------------
Mark A. McKinlay
(610) 651-0200 ext. 3103 6111 North River Road
Rosemont, Illinois 60018
Attn.: Venture Group
Address for Notices:
- -------------------
76 Great Valley Parkway
Malvern, Pa 19355
Attn.: /s/ Carolyn Vandeweghe
Central Billing Location: Rent Interval: Monthly
- ------------------------ ----------------------
Same as Above
Attn.:
Lessee Reference No.: 03-001
-------------
(24 digits maximum)
Location of Equipment Initial Term: 36 months
- --------------------- ------------ -----------
Same as Above (Number of Rent Intervals)
Lease Rate Factor: 3.233%
Attn.: ----------------- --------
EQUIPMENT (as defined below): Advance: $6,466.00
------- --------
Tenant Improvements ("Equipment") specifically approved by Lessor, which
shall be delivered to and accepted by Lessee during the period October 25, 1995
through October 25, 1996 ("Equipment Delivery Period"), for which Lessor
receives vendor invoices approved for payment, up to an aggregate purchase price
of $200,000.00 ("Commitment Amount"); excluding custom use equipment,
installation costs and delivery costs, rolling stock, special tooling,
"stand-alone" software, application software bundled into computer hardware,
hand held items, molds and fungible items.
<PAGE>
1. Equipment Purchase
This Schedule contemplates Lessor's acquisition of Equipment for lease to
Lessee, either by one of the first three categories listed below or by providing
Lessee with Equipment from the fourth category, in a value up to the Commitment
Amount referred to on the face of this Schedule. If the Equipment acquired is
of category (i), (ii) or (iii) below, the effectiveness of this Schedule as it
relates to those items of Equipment is contingent upon Lessee's acknowledgment
at the time Lessor acquires the Equipment that Lessee has either received or
approved the relevant purchase documentation between vendor and Lessor for that
Equipment.
Lessor will finance only the acquisition of individual items of Equipment
with a cost to Lessor of more than $500.00.
(i) NEW ON-ORDER EQUIPMENT. Lessor will purchase new Equipment which is
specifically approved by Lessor.
(ii) SALE-LEASEBACK EQUIPMENT. Any in-place Equipment installed at
Lessee's site and to which Lessee has clear title and ownership may
be considered by Lessor for inclusion under this Lease (the "Sale-
Leaseback Transaction"). Any request for a Sale-Leaseback Transaction
must be submitted to Lessor in writing (along with accompanying
evidence of Lessee's Equipment ownership satisfactory to Lessor for
all Equipment submitted) no later than December 8, 1995*. Lessor will
not perform a Sale-Leaseback Transaction for any request or
accompanying Equipment ownership documents which arrive after the
date marked above by an asterisk (*). Further, any sale-leaseback
Equipment will be placed on lease subject to: (1) Lessor prior
approval of the Equipment; and (2) if approved, at Lessor's actual
net appraised Equipment value pursuant to the schedule below:
ORIGINAL EQUIPMENT INVOICE PERCENT OF ORIGINAL MANUFACTURER'S
DATE NET EQUIPMENT COST PAID BY LESSOR
-------------------------- -----------------------------------
Between 8/23/95 and 11/22/95 100%
Between 6/23/95 and 8/22/95 80%
Between 3/23/95 and 6/22/95 70%
Between 12/23/94 and 3/22/95 65%
Between 9/23/94 and 12/22/94 60%
(iii) USED ON-ORDER EQUIPMENT. Lessor will purchase used Equipment which
is obtained from a third party by Lessee for its use subject to
Lessor's prior approval of the Equipment and at Lessor's appraised
value for such used Equipment.
(iv) INVENTORY EQUIPMENT. Upon Lessee's request, Lessor may supply new or
used Equipment from its inventory at rates provided by Lessor.
2. Commencement Date
The Commencement Date for each item of new on-order or used on-order
Equipment will be the date Lessee approves the vendor invoice. The Commencement
Date for sale-leaseback Equipment shall be the date Lessor tenders the purchase
price, and the Commencement Date for inventory Equipment shall be the Delivery
Date. Lessor will summarize all approved invoices, purchase documentation and
evidence of delivery, as applicable, received in the same calender quarter into
a Summary Equipment Schedule in the form attached to this Schedule as Exhibit 1,
and the Initial Term will begin the first day of the calendar quarter
thereafter. Each Summary Equipment Schedule will contain the Equipment
location, description, serial number(s) and cost and will incorporate the terms
and conditions of the Master Lease and this Schedule and will constitute a
separate lease.
<PAGE>
3. Expiration of the Lease Term
In consideration of Lessor entering into this Equipment Schedule, Lessee
agrees, at the expiration of the fixed Initial Term of this Equipment Schedule,
to either: (A) purchase all, but not less than all, of the Equipment for a
purchase price equal to 15% of Lessor's original cost of Equipment and upon
terms and conditions to be mutually agreed upon by the parties following
Lessee's written notice, plus any taxes applicable at time of purchase, or (B)
extend the Initial Term of this Equipment Schedule for a minimum period of one
(1) year at a mutually agreeable rate based on a value equal to 15% of Lessor's
original cost of Equipment. Lessee agrees to notify Lessor in writing at least
one hundred twenty (120) days prior to the expiration of the fixed Initial Term
of this Equipment Schedule as to which option Lessee elects. If Lessee fails to
provide Lessor with such written notice or if the parties are unable to agree to
a purchase price or rate, then Lessee agrees to continue to lease the equipment
for the period of one (1) year at the then current market rate based on a value
for the Equipment of 15% of Lessor's original cost of Equipment.
4. Special Terms
The terms and conditions of the Lease as they pertain to this Schedule are
hereby modified and amended as follows:
(i) Section 5.2, "Relocation or Sublease."
In the second paragraph, clause (vi), insert the word
"reasonably" before "acceptable".
(ii) Section 7.1, "Care, Use and Maintenance."
Insert the following between the second and third sentences:
"Lessee may self-maintain items of Equipment
which have a purchase price under $50,000."
(iii) Section 8, "Representations and Warranties by Lessee"
Delete Paragraph (d) and replace with the following:
"Lessee shall obtain a Landlord Waiver in a form
reasonably acceptable to Lessor."
(iv) Section 11, "Indemnity"
In the second sentence, after "negligent," insert "or willful"
before the word "acts".
(v) Section 12, "Risk of Loss"
In the third sentence, delete the phrase "regardless of any
breach or violation by Lessee of any representation, warranty or
condition contained in such policies".
(vi) Section 14.1, "Board Attendance"
Insert the following sentence between the first and second
sentences: "Upon and after such time as the Company has a class of
equity securities registered under the Securities Exchange Act of
1934, as amended, Lessor's right to attend such meetings shall
cease."
Master Lease: This Schedule is issued pursuant to the Lease identified on
page 1 of this Schedule. All of the terms and conditions of the Lease are
incorporated in and made a part of this Schedule as if they were expressly set
forth in this Schedule. The parties
<PAGE>
hereby reaffirm all of the terms and conditions of the Lease (including, without
limitation, the representations and warranties set forth in Section 8) except as
modified herein by this Schedule. This Schedule may not be amended or rescinded
except by a writing signed by both parties.
VIROPHARMA, INC. COMDISCO, INC.
as Lessee as Lessor
By: /s/Claude H. Nash By: [SIGNATURE APPEARS HERE]
-------------------------- ------------------------------
Title: President & CEO Title: [TITLE APPEARS HERE]
----------------------- ---------------------------
Date: 10-25-95 Date: 11/13/95
------------------------ ----------------------------
JAP/10/26/95
g:JAP\venture\viro3.doc
<PAGE>
18 SLXXXXX-XX
EXHIBIT 1
SUMMARY EQUIPMENT SCHEDULE
--------------------------
This Summary Equipment Schedule dated XXXX is executed pursuant to
Equipment Schedule No. X to the Master Lease Agreement dated XXXX between
Comdisco, Inc. ("Lessor") and XXXX ("Lessee"). All of the terms, conditions,
representations and warranties of the Master Lease Agreement and Equipment
Schedule No. X are incorporated herein and made a part hereof, and this Summary
Equipment Schedule constitutes a Schedule for the Equipment on the attached
invoices.
1. For Period Beginning: And Ending:
-------------------- ----------
2. Initial Term Starts on: Initial Term:
---------------------- ------------
(Number of Rent Intervals)
3. Total Summary Equipment Cost:
----------------------------
4. Lease Rate Factor:
-----------------
5. Rent:
----
6. Acceptance Doc Type:
-------------------
<PAGE>
EQUIPMENT SCHEDULE VL-4
DATED AS OF SEPTEMBER 13, 1995
TO MASTER LEASE AGREEMENT
DATED AS OF SEPTEMBER 13, 1995 (THE "MASTER LEASE")
LESSEE: VIROPHARMA, INC. LESSOR: COMDISCO, INC.
Admin.Contact/Phone No.: Address for all Notices:
- ------------------------ -----------------------
Mark A. McKinlay
(610) 651-0200 Ext. 3103 6111 North River Road
Rosemont, Illinois 60018
Attn.: Venture Group
Address for Notices:
- -------------------
76 Great Valley Parkway
Malvern, PA 19355
Attn.: Carolyn Vandeweghe
Central Billing Location: Rent Interval: Monthly
- ------------------------ -------------
Same as Above
Attn.:
Lessee Reference No.: 04-001
----------------
(24 digits maximum)
Location of Equipment: Initial Term: 36 months
- --------------------- ------------ -----------
Same as Above (Number of Rent Intervals)
Monthly Rent: $2,530.45
------------ -----------
Attn.:
EQUIPMENT (as defined below): Advance: $ 2,530.45
------- ----------
Remanufactured Bruker AM 250 MHz Superconducting NMR Spectrometer with
120 Carousel Sample Changer and Full Automation Software, which shall be
delivered to and accepted by Lessee during the period October 25, 1995
through October 25, 1996 ("Equipment Delivery Period"), for which Lessor
receives a vendor invoice approved for payment, for an aggregate
purchase price of $91,096.00 ("Commitment Amount").
<PAGE>
1. Equipment Purchase
This Schedule contemplates Lessor's acquisition of Equipment for lease to
Lessee, either by one of the first three categories listed below or by providing
Lessee with Equipment from the fourth category, in a value up to the Commitment
Amount referred to on the face of this Schedule. If the Equipment acquired is of
category (i), (ii) or (iii) below, the effectiveness of this Schedule as it
relates to those items of Equipment is contingent upon Lessee's acknowledgment
at the time Lessor acquires the Equipment that Lessee has either received or
approved the relevant purchase documentation between vendor and Lessor for that
Equipment.
Lessor will finance only the acquisition of individual items of Equipment
with a cost to Lessor of more than $500.00.
(i) NEW ON-ORDER EQUIPMENT. Lessor will purchase new Equipment which
is specifically approved by Lessor.
(ii) SALE-LEASEBACK EQUIPMENT. Any in-place Equipment installed at
Lessee's site and to which Lessee has clear title and ownership may
be considered by Lessor for inclusion under this Lease (the "Sale-
Leaseback Transaction"). Any request for a Sale-Leaseback
Transaction must be submitted to Lessor in writing (along with
accompanying evidence of Lessee's Equipment ownership satisfactory
to Lessor for all Equipment submitted) no later than December 8,
1995*. Lessor will not perform a Sale-Leaseback Transaction for any
request or accompanying Equipment ownership documents which arrive
after the date marked above by an asterisk (*). Further, any sale-
leaseback Equipment will be placed on lease subject to: (1) Lessor
prior approval of the Equipment; and (2) if approved, at Lessor's
actual net appraised Equipment value pursuant to the schedule
below:
<TABLE>
<CAPTION>
ORIGINAL EQUIPMENT INVOICE PERCENT OF ORIGINAL MANUFACTURER'S
DATE NET EQUIPMENT COST PAID BY LESSOR
-------------------------- ----------------------------------
<S> <C>
Between 8/23/95 and 11/22/95 100%
Between 6/23/95 and 8/22/95 80%
Between 3/23/95 and 6/22/95 70%
Between 12/23/94 and 3/22/95 65%
Between 9/23/94 and 12/22/94 60%
</TABLE>
(iii) USED ON-ORDER EQUIPMENT. Lessor will purchase used Equipment which
is obtained from a third party by Lessee for its use subject to
Lessor's prior approval of the Equipment and at Lessor's appraised
value for such used Equipment.
(iv) INVENTORY EQUIPMENT. Upon Lessee's request, Lessor may supply new
or used Equipment from its inventory at rates provided by Lessor.
2. Commencement Date
The Commencement Date for each item of new on-order or used on-order
Equipment will be the date Lessee approves the vendor invoice. The Commencement
Date for sale-leaseback Equipment shall be the date Lessor tenders the purchase
price, and the Commencement Date for inventory Equipment shall be the Delivery
Date. Lessor will summarize all approved invoices, purchase documentation and
evidence of delivery, as applicable, received in the same calendar quarter into
a Summary Equipment Schedule in the form attached to this Schedule as Exhibit 1,
and the Initial Term will begin the first day of the calendar quarter
thereafter. Each Summary Equipment Schedule will contain the Equipment
location, description, serial number(s) and cost and will incorporate the terms
and conditions of the Master Lease and this Schedule and will constitute a
separate lease.
<PAGE>
3. Option to Extend
So long as no Event of Default has occurred and is continuing hereunder,
and upon written notice no earlier than twelve (12) months and no later than
ninety (90) days prior to the expiration of the Initial Term of a Summary
Equipment Schedule, Lessee will have the right to extend the Initial Term of
such Summary Equipment Schedule for a period of one (1) year. In such event,
the rent to be paid during said extended period shall be mutually agreed upon
and if the parties cannot mutually agree, then the Summary Equipment Schedule
shall continue in full force and effect pursuant to the existing terms and
conditions until terminated in accordance with its terms. The Summary Equipment
Schedule will continue in effect following said extended period until terminated
by either party upon not less than ninety (90) days prior written notice, which
notice shall be effective as of the date of receipt.
4. Purchase Option
So long as no Event of Default has occurred and is continuing hereunder,
and upon written notice no earlier than twelve (12) months and no later than
ninety (90) days prior to the expiration of the Initial Term or the extended
term of the applicable Summary Equipment Schedule, Lessee will have the option
at the expiration of the Initial Term of the Summary Equipment Schedule to
purchase all, but not less than all, of the Equipment listed therein for a
purchase price not to exceed Fair Market Value and upon terms and conditions to
be mutually agreed upon by the parties following Lessee's written notice, plus
any taxes applicable at the time of purchase. Said purchase price shall be paid
to Lessor at least thirty (30) days before the expiration date of the Initial
Term or extended term. Title to the Equipment shall automatically pass to Lessee
upon payment in full of the purchase price but, in no event, earlier than the
expiration of the fixed Initial Term or extended term, if applicable. If the
parties are unable to agree on the purchase price or the terms and conditions
with respect to said purchase, then the Summary Equipment Schedule with respect
to this Equipment shall remain in full force and effect. Notwithstanding the
exercise by Lessee of this option and payment of the purchase price, until all
obligations under the applicable Summary Equipment Schedule have been fulfilled,
it is agreed and understood that Lessor shall retain a purchase money security
interest in the Equipment listed therein and the Summary Equipment Schedule
shall constitute a Security Agreement under the Uniform Commercial Code of the
state in which the Equipment is located.
5. Special Terms
The terms and conditions of the Lease as they pertain to this Schedule
are hereby modified and amended as follows:
(i) Section 5.2, "Relocation or Sublease."
In the second paragraph, clause (vi), insert the word
"reasonably" before "acceptable."
(ii) Section 7.1, "Care, Use and Maintenance."
Insert the following between the second and third
sentences:
"Lessee may self-maintain items of Equipment which have
a purchase price under $50,000."
(iii) Section 11, "Indemnity"
In the second sentence, after "negligent," insert "or
willful" before the word "acts."
(iv) Section 12, "Risk of Loss"
In the third sentence, delete the phrase "regardless of
any breach or violation by Lessee of any representation, warranty
or condition contained in such policies".
<PAGE>
(v) Section 14.1 "Board Attendance"
Insert the following sentence between the first and
second sentences: "Upon and after such time as the Company has a class
of equity securities registered under the Securities Exchange Act of
1934, as amended, Lessor's right to attend such meetings shall cease."
Master Lease: This Schedule is issued pursuant to the Lease identified on
page 1 of this Schedule. All of the terms and conditions of the Lease are
incorporated in and made a part of this Schedule as if they were expressly set
forth in this Schedule. The parties hereby reaffirm all of the terms and
conditions of the Lease (including, without limitation, the representations and
warranties set forth in Section 8) except as modified herein by this Schedule.
This Schedule may not be amended or rescinded except by a writing signed by both
parties.
VIROPHARMA, INC. COMDISCO, INC.
as Lessee as Lessor
By: /s/ [SIGNATURE APPEAR HERE] By: /s/ [SIGNATURE APPEARS HERE]
---------------------------- ---------------------------
Title: President & CEO Title: [TITLE APPEARS HERE]
------------------------- ------------------------
Date: 10-25-95 Date: 11/3/95
-------------------------- -------------------------
<PAGE>
18 SLXXXXX-XX
EXHIBIT 1
SUMMARY EQUIPMENT SCHEDULE
--------------------------
This Summary Equipment Schedule dated XXXX is executed pursuant to
Equipment Schedule No. X to the Master Lease Agreement dated XXXX between
Comdisco, Inc. ("Lessor") and XXXX ("Lessee"). All of the terms, conditions,
representations and warranties of the Master Lease Agreement and Equipment
Schedule No. X are incorporated herein and made a part hereof, and this Summary
Equipment Schedule constitutes a Schedule for the Equipment on the attached
invoices.
1. For Period Beginning: And Ending:
-------------------- ----------
2. Initial Term Starts on: Initial Term:
---------------------- ------------
(Number of Rent Intervals)
3. Total Summary Equipment Cost:
----------------------------
4. Lease Rate Factor:
-----------------
5. Rent:
----
6. Acceptance Doc Type:
-------------------
<PAGE>
MASTER EQUIPMENT LEASE NO. 053-0005
Under this Master Equipment Lease No. 053-0005 (the "Lease"), dated as of
December 1, 1995, Phoenix Leasing Incorporated, a California corporation
("Lessor"), hereby leases to ViroPharma, Inc., a Delaware corporation
("Lessee"), and Lessee hereby leases from Lessor, the equipment (herein called
"Equipment") which is described on the schedule attached hereto or any
subsequently-executed schedule entered into by Lessor and Lessee and which
incorporates this Lease by reference. Any such schedules shall hereinafter
individually be referred to as a "Schedule" and collectively be referred to as
the "Schedules." Lessor hereby leases the Equipment to Lessee upon the following
terms and conditions:
1. TERM OF AGREEMENT. The term of this Lease begins on the date set forth
above and shall continue thereafter and be in effect so long as and at any time
any Schedule entered into pursuant to this Lease is in effect. The Initial Term
and rent payable with respect to each leased item of Equipment shall be as set
forth in and as stated in the respective Schedule(s). The terms of each Schedule
hereto are subject to all conditions and provisions of this Lease as it may at
any time be amended. Each Schedule shall constitute a separate and independent
lease and contractual obligation of Lessee and shall incorporate the terms and
conditions of this Master Equipment Lease and any additional provisions
contained in such Schedule. In the event of a conflict between the terms and
conditions of this Lease and any additional provisions of such Schedule, the
additional provisions of such Schedule shall prevail with respect to such
Schedule only.
2. NON-CANCELLABLE LEASE. This Lease and any Schedule cannot be cancelled
or terminated except as expressly provided herein. This Lease (including all
Schedules to this Lease) constitutes a net lease and Lessee agrees that its
obligations to pay all rent and other sums payable hereunder (and under any
Schedule) and the rights of Lessor and assignee in and to such rent and other
sums, are absolute and unconditional and are not subject to any abatement,
reduction, setoff, defense, counterclaim or recoupment due or alleged to be due
to, or by reason of, any past, present or future claims which Lessee may have
against Lessor, any assignee, the manufacturer or seller of the Equipment, or
against any person for any reason whatsoever.
3. LESSOR COMMITMENT. So long as no Event of Default or event which with
the giving of notice or passage of time, or both, could become an Event of
Default has occurred or is continuing, Lessor agrees to lease to Lessee the
groups of Equipment described on each Schedule, subject to the following
conditions: (i) that in no event shall Lessor be obligated to lease Equipment
to Lessee hereunder where the aggregate purchase price of all Equipment leased
to Lessee hereunder would exceed $650,000 ("Commitment") of which an amount not
exceeding $150,000 may be applied to the lease of equipment formerly leased by
Symphony Pharmaceuticals, Inc. ("Symphony Equipment") and for the purchase or to
pay for casework, tenant improvements and non-portable chemical hoods ("Soft
Assets") for lease by Lessor to Lessee (any Equipment which is not Symphony
Equipment or Soft Assets is referred to in the Lease as "New Equipment");
provided the aggregate purchase price of Soft Assets at anytime does not exceed
an amount equal to 30% of the aggregate amount of the New Equipment purchased;
(ii) the amount of Equipment purchased by Lessor at any one time shall be at
least equal to $35,000 except for a final advance which may be less than
$35,000; (iii) Lessor shall not be obligated to purchase Equipment hereunder
after December 31, 1996 ("Commitment Period") provided that the Commitment
Period may be extended if Lessor has received and approved in its sole
discretion Lessee's monthly business plan for 1996; (iv) all Lease documentation
required by Lessor has been executed by Lessee or provided by Lessee no later
than December 31, 1995; (v) the equipment described on the Schedule is
acceptable to Lessor and with respect to equipment which is Symphony Equipment,
the equipment cost listed on the Schedule is
-1-
<PAGE>
acceptable to Lessor; (vi) with respect to each funding Lessee has provided to
Lessor each of the closing documents and other items described in Exhibit A
hereto (which documents shall be in form and substance acceptable to Lessor) and
which list may be modified for each subsequent funding; (vii) there is no
material adverse change in Lessee's condition, financial or otherwise, as
determined by Lessor, and Lessee so certifies, from (yy) the date of the most
recent financial statements delivered by Lessee to Lessor prior to execution of
this Lease, to (zz) the date of the proposed lease of the Equipment; (viii)
Lessee is performing according to its business plan referred to as "ViroPharma,
Inc. 95 Financial Plan" dated July 24, 1995, as may be amended from time to time
in form and substance acceptable to Lessor ("Business Plan"); (ix) Lessor or its
agent has inspected and placed identification labels on the Equipment; (x)
Lessee shall offer to Lessor, on an exclusive basis, all lease transactions for
equipment contemplated by Lessee until expiration of all Schedules; however if
Lessor declines to finance any such transaction or Lessee and Lessor cannot
agree upon terms, then Lessee shall be free to seek such financing from any
other third party; and (xi) Lessor has received in form and substance acceptable
to Lessor: (a) Lessee's interim monthly financial statements (which shall be the
statements for the next preceding month) signed by a financial officer of
Lessee; (b) evidence of Lessee's receipt of $3,500,000 equity by October 31,
1995; and (c) evidence of Lessee's $2,470,000 cash position as of August 31,
1995.
4. NO WARRANTIES BY LESSOR. (a) Lessee has selected both (i) the
Equipment and (ii) the suppliers (herein called "Vendor") from whom Lessor is to
purchase the Equipment. LESSOR MAKES NO WARRANTY EXPRESS OR IMPLIED AS TO ANY
MATTER WHATSOEVER, INCLUDING THE CONDITION OF THE EQUIPMENT, ITS MERCHANTABILITY
OR ITS FITNESS FOR ANY PARTICULAR PURPOSE, AND AS TO LESSOR, LESSEE LEASES THE
EQUIPMENT "AS IS" AND WITH ALL FAULTS. (b) If the Equipment is not properly
installed, does not operate as represented or warranted by Vendor or is
unsatisfactory for any reason, Lessee shall make any claim on account thereof
solely against Vendor and shall, nevertheless, pay Lessor all rent payable under
this Lease, Lessee hereby waiving any such claims as against Lessor. Lessor
hereby agrees to assign to Lessee solely for the purpose of making and
prosecuting any said claim, to the extent assignable, all of the rights which
Lessor has against Vendor for breach of warranty or other representation
respecting the Equipment. Lessor shall have no responsibility for delay or
failure to fill the order. (c) Lessee understands and agrees that neither the
Vendor nor any salesman or other agent of the Vendor is an agent of Lessor. No
salesman or agent of Vendor is authorized to waive or alter any term or
condition of this Lease, and no representations as to the Equipment or any other
matter by the Vendor shall in any way affect Lessee's duty to pay the rent and
perform its other obligations as set forth in this Lease. (d) Lessee hereby
requests Lessor to purchase Equipment from Vendor and to lease Equipment to
Lessee on the terms and conditions of the Lease set forth herein. (e) Lessee
hereby authorizes Lessor to insert in this Lease and each Schedule hereto the
serial numbers and other identification data of the Equipment when determined by
Lessor.
5. LESSEE'S REPRESENTATIONS AND WARRANTIES. Lessee represents and
warrants that (a) it is a corporation in good standing under the laws of the
state of its incorporation, and duly qualified to do business, and will remain
duly qualified to do business, during the term of this Lease, in each state
where the Equipment will be located, as specified on each Schedule hereto; (b)
it has full authority to execute and deliver this Lease and perform the terms
hereof, and this Lease has been duly authorized and constitutes valid and
binding obligations of Lessee enforceable in accordance with its terms; (c) this
Lease will not contravene any law, regulation or judgment affecting Lessee or
result in any breach of any agreement or other instrument binding on Lessee; (d)
no consent of Lessee's shareholders or holder of any indebtedness, or filing
with, or approval of, any governmental agency or commission, is a condition to
the performance of the terms hereof; (e) there is no action or proceeding
pending or threatened against Lessee before any court or administrative
-2-
<PAGE>
agency which might have a materially adverse effect on the business, financial
condition or operations of Lessee; (f) no deed of trust, mortgage or third party
interest arising through Lessee will attach to the Equipment or the Lease; (g)
the Equipment will remain at all times under applicable law, removable personal
property, free and clear of any lien or encumbrance in favor of Lessee or any
other person, notwithstanding the manner in which the Equipment may be attached
to any real property; (h) all credit, financial and any other information
submitted to Lessor herewith or any other time is true and correct; and (i)
Lessee has provided, or will provide if requested, Lessee's tax identification
number.
6. EQUIPMENT ORDERING. Lessee shall be responsible for all packing,
rigging, transportation and installation charges for the Equipment and Lessor
may separately invoice Lessee for such charges. Lessee has selected the
Equipment itself and shall arrange for delivery of Equipment so that it can be
accepted in accordance with Section 7 hereof. Lessee hereby agrees to indemnify
and hold Lessor harmless from any claims, liabilities, costs and expenses,
including reasonable attorneys' fees, incurred by Lessor arising out of any
purchase orders or assignments executed by Lessor with respect to any Equipment
or services relating thereto.
7. LESSEE ACCEPTANCE. Lessee shall return to Lessor the signed and dated
Acceptance Notice attached to each Schedule hereto (a) acknowledging the
Equipment has been received, installed and is ready for use and (b) accepting it
as satisfactory in all respects for the purposes of this Lease. Lessor is
authorized to fill in the Rent Start Date on each Schedule in accordance with
the foregoing.
8. LOCATION; INSPECTION; LABELS. Equipment shall be delivered to and
shall not be removed from the Equipment "Location" shown on each Schedule
without Lessor's prior written consent, which "Location" shall in all events be
within the United States. Lessor shall have the right to inspect Equipment at
any reasonable time. Lessee shall be responsible for all labor, material and
freight charges incurred in connection with any removal or relocation of such
Equipment which is requested by the Lessee and consented to by Lessor, as well
as for any charges due to the installation or moving of the Equipment. The
rental payments shall continue during any period in which the Equipment is in
transit during a relocation. Lessor or its agent shall mark and label
Equipment, which labels shall state Equipment is owned by Lessor, and Lessee
shall keep such labels on the Equipment as labeled by Lessor or its agent.
9. EQUIPMENT MAINTENANCE. (a) General. Lessee will locate or base each
-------
item of Equipment where designated in an Acceptance Notice and will reasonably
permit Lessor to inspect such item of Equipment and its maintenance records.
Lessee will at its sole expense comply with all applicable laws, rules,
regulations, requirements and orders with respect to the use, maintenance,
repair, condition, storage and operation of each item of Equipment. Except as
required herein, Lessee will not make any addition or improvement to any item of
Equipment that is not readily removable without causing material damage to any
item or impairing its original value or utility. Any addition or improvement
that is so required or cannot be so removed will immediately become the property
of Lessor. (b) Service and Repair. With respect to computer equipment, other
------------------
than personal computers, Lessee has entered into, and will maintain in effect,
Vendor's standard maintenance contract or another contract satisfactory to
Lessor for a period equal to the term of each Schedule and extensions thereto
which provides for the maintenance of the Equipment and repairs and replacement
parts thereof in good condition and working order, all in accordance with the
terms of such maintenance contract. Lessee shall have the Equipment certified
for the Vendor's standard maintenance agreement prior to delivery to Lessor upon
expiration of this Lease. With respect to any other Equipment, Lessee will, at
its sole expense, maintain and service, and repair any damage to, each item of
Equipment in a
-3-
<PAGE>
manner consistent with prudent industry practice and Lessee's own practice so
that such item of Equipment is at all times (i) in the same condition as when
delivered to Lessee, except for ordinary wear and tear, (ii) in good operating
order for the function intended by its manufacturer's warranties and
recommendations.
10. LOSS OR DAMAGE. Lessee assumes the entire risk of loss to the
Equipment through use, operation or otherwise. Lessee hereby indemnifies and
holds harmless Lessor from and against all claims, loss of rental payments,
costs, damages, and expenses relating to or resulting from any loss, damage or
destruction of the Equipment, any such occurrence being hereinafter called a
"Casualty Occurrence." On the first rental payment date following such Casualty
Occurrence, or, if there is no such rental payment date, thirty (30) days after
such Casualty Occurrence, Lessee shall (i) repair the Equipment, returning it to
good operating condition or (ii) replace the Equipment with identical equipment
in good condition and repair, the title to which shall vest in Lessor and which
thereafter shall be subject to the terms of this Lease; or (iii) pay to Lessor
(a) any unpaid accrued amounts relating to such Equipment due Lessor under this
Lease up to the date of the Casualty Occurrence, and (b) a sum equal to the
Casualty Value as set forth in the Casualty Value table attached to each
Schedule hereto for such Equipment. Upon the making of such payment, the term of
this Lease as to each unit of Equipment with respect to which the Casualty Value
was paid shall terminate.
11. GENERAL INDEMNITY. Lessee will protect, indemnify and save harmless
Lessor from against all liabilities, obligations, claims, damages, penalties,
causes of action, costs and expenses, imposed upon or incurred by or asserted
against Lessor or any assignee of Lessor by Lessee or any third party by reason
of the occurence or existence (or alleged occurrence or existence) of any act or
event relating to or caused by the Equipment, including but not limited to,
consequential or special damages of any kind, or any failure on the part of
Lessee to perform or comply with any of the terms of this Lease. In the event
that any action, suit or proceeding is brought against Lessor by reason of any
such occurrence, Lessee, upon request of Lessor, will at Lessee's expense resist
and defend such action, suit or proceeding or cause the same to be resisted and
defended by counsel designated and approved by Lessor. Lessee's obligations
under this Section 11 shall survive the expiration of this Lease with respect to
acts or events occurring or alleged to have occurred prior to the return of the
Equipment to Lessor at the end of the Lease term.
12 INSURANCE. Lessee at its expense shall keep the Equipment insured for
the entire term and any extensions of this Lease against all risks for at least
the replacement value of such Equipment and shall provide for (a) loss payable
endorsement to Lessor or any assignee of Lessor. Lessee shall maintain public
liability and property damage insurance in an amount not less than $5,000,000,
naming Lessor as additional insured. Such insurance shall contain insurer's
agreement to give thirty (30) days written notice to Lessor before cancellation
or material change of any policy of insurance. Lessee will provide Lessor
and any assignee of Lessor with a certificate of insurance from the insurer
evidencing Lessor's or such assignee's interest in the policy of insurance.
Such insurance shall cover any Casualty Occurrence to any unit of Equipment.
Notwithstanding anything in Section 10 or this Section 12 to the contrary, this
Lease and Lessee's obligations hereunder and under each Schedule shall remain in
full force and effect with respect to any unit of Equipment which is not subject
to a Casualty Occurrence. If Lessee fails to provide or maintain insurance as
required herein, Lessor shall have the right, but shall not be obligated to
obtain such insurance. In that event, Lessee shall pay to Lessor the cost
thereof.
-4-
<PAGE>
13. TAXES. Lessee agrees to reimburse Lessor for, (or pay directly if
instructed by Lessor), and agrees to indemnify and hold Lessor harmless from,
all fees (including, but not limited to, license, documentation, recording and
registration fees), and all sales, use, gross receipts, personal property,
occupational, value added of other taxes, levies, imposts, duties, assessments,
charges, or withholdings of any nature whatsoever, together with any penalties,
fines, additions to tax, or interest thereon (all of the foregoing being
hereafter referred to as "Impositions") except same as may be attributable to
Lessor's income, arising at any time prior to or during the term of this Lease,
or upon termination or early termination of this Lease and levied or imposed
upon Lessor directly or otherwise by any Federal, state of local government in
the United States or by any foreign country or foreign or international taxing
authority upon or with respect to (i) the Equipment, (ii) the exportation,
importation, registration, purchase, ownership, delivery, leasing, possession,
use, operation, storage, maintenance, repair, return, sale, transfer of title,
or other disposition thereof, (iii) the rentals, receipts, or earnings arising
from the Equipment, or any disposition of the rights to such rentals, receipts,
or earnings, (iv) any payment pursuant to this Lease, and (v) this Lease or the
transaction or any part thereof. Lessee understands that the indemnity in this
Section includes remarketed or used Equipment on which Impositions may be
assessed on the basis of Equipment values different (and higher) than the value
of the same Equipment in Lessee's hands. Lessee's obligations under this
Section 13 shall survive the expiration of this Lease with respect to acts or
events occurring or alleged to have occurred prior to the return of the
Equipment to Lessor at the end of the Lease term.
14. PAYMENT BY LESSOR. If Lessee shall fail to make any payment or
perform any act required hereunder, then Lessor may, but shall not be required
to, after such notice to Lessee as is reasonable under the circumstances, make
such payment or perform such act with the same effect as if made or performed by
Lessee. Lessee will upon demand reimburse Lessor for all sums paid and all
costs and expenses incurred in connection with the performance of any such act.
15. SURRENDER OF EQUIPMENT. Upon termination or expiration of this Lease,
with respect to each group of Equipment, Lessee will forthwith surrender the
Equipment to Lessor delivered in as good order and condition as originally
delivered, reasonable wear and tear excepted. Lessor may, at its sole option,
arrange for removal and transportation of the Equipment provided that Lessee's
obligations under Sections 10, 11 and 12 shall not be released. Lessee shall
bear all expenses of delivering (which include, but are not limited to, the
de-installation, insurance, packaging and transportation of) the Equipment to
Lessor's location or other location within the United States as Lessor may
request. In the event Lessee fails to deliver the Equipment as directed above,
all obligations of Lessee under this Lease, including rental payments, shall
remain in full force and effect until Lessee delivers the Equipment to Lessor.
16. ASSIGNMENT. WITHOUT LESSOR'S PRIOR WRITTEN CONSENT, SUCH CONSENT NOT
TO BE UNREASONABLY WITHHELD, LESSEE SHALL NOT (a) ASSIGN, TRANSFER, PLEDGE,
HYPOTHECATE OR OTHERWISE DISPOSE OF THIS LEASE, EQUIPMENT, OR ANY INTEREST
THEREIN, OR (b) SUBLET OR LEND EQUIPMENT OR PERMIT IT TO BE USED BY ANYONE OTHER
THAN LESSEE OR LESSEE'S EMPLOYEES. LESSOR MAY ASSIGN THIS LEASE OR GRANT A
SECURITY INTEREST IN ANY OR ALL EQUIPMENT, OR BOTH, IN WHOLE OR IN PART TO ONE
OR MORE ASSIGNEES OR SECURED PARTIES WITHOUT NOTICE TO LESSEE. If Lessee is
given notice of such assignment it agrees to acknowledge receipt thereof in
writing and Lessee shall execute such additional documentation as Lessor's
assignee shall require. Each such assignee and/or secured party shall have all
of the rights, but none of the obligations, of Lessor under this Lease, unless
such assignee or secured party expressly agrees to assume such obligations in
writing. Lessee shall not assert against any assignee and/or secured party any
defense, counterclaim or offset that
-5-
<PAGE>
Lessee may have against Lessor. Notwithstanding any such assignment, and
providing no Event of Default has occurred and is continuing, Lessor, or its
assignee, secured parties, or their agents or assigns, shall not interfere with
Lessee's right to quietly enjoy use of Equipment subject to the terms and
conditions of this Lease. Subject to the foregoing, this Lease inures to the
benefit of and is binding upon the successors and assignees of the parties
hereto. Lessee acknowledges that any such assignment by Lessor will not
materially change Lessee's duties or obligations under the Lease or increase any
burden of risk on Lessee.
17. DEFAULT. (a) Event of Default. Any of the following events or
----------------
conditions shall constitute an "Event of Default" hereunder: (i) Lessee's
failure to pay any monies due to Lessor hereunder or under any Schedule beyond
the fifth (5th) day after the same is due; (ii) Lessee's failure to comply with
its obligations under Section 12 or Section 16; (iii) Lessee's failure to comply
with or perform any term, covenant, condition, warranty or representation of
this Lease or any Schedule hereto or under any other agreement between Lessee
and Lessor or under any lease of real property covering the location of
Equipment if such failure to comply or perform is not cured by Lessee within
thirty (30) days of receipt of notice thereof; (iv) seizure of the Equipment
under legal process; (v) the filing by or against Lessee of a petition for
reorganization or liquidation under the Bankruptcy Code or any amendment thereto
or under any other insolvency law providing for the relief of debtors; (vi) the
voluntary or involuntary making of an assignment of a substantial portion of its
assets by Lessee, or any guarantor ("Guarantor") under any guaranty executed in
connection with this Lease ("Guaranty"), for the benefit of its creditors, the
appointment of a receiver or trustee for Lessee or any Guarantor for any of
Lessee's or Guarantor's assets, the institution by or against Lessee or any
Guarantor of any formal or informal proceeding for dissolution, liquidation,
settlement of claims against or winding up of the affairs of Lessee or any
Guarantor, provided that in the case of all such involuntary proceedings, same
--------
are not dismissed within sixty (60) days after commencement; or (vii) the making
by Lessee or any Guarantor of a transfer of all or a material portion of
Lessee's of Guarantor's assets or inventory not in the ordinary course of
business.
(b) Remedies. If any Event of Default shall have occurred:
--------
(i) Lessor may proceed by appropriate court action or actions either at
law or in equity to enforce performance by Lessee, of the applicable covenants
of this Lease, or to recover damage therefor; or
(ii) Lessee will, without demand, on the next rent payment date following
the Event of Default, pay to Lessor as liquidated damages which the parties
agree are fair and reasonable under the circumstances existing at the time this
Lease is entered into, and not as a penalty, an amount equal to the Casualty
Value of the Equipment set forth in Exhibit C together with any rent or other
amounts past due and owing by Lessee hereunder; and
(iii) Lessor may, without notice to or demand upon Lessee;
(a) Take possession of the Equipment and lease or sell the same or
any portion thereof, for such period, amount, and to such entity as Lessor shall
elect. The proceeds of such lease or sale will be applied by Lessor (A) first,
to pay all costs and expenses, including reasonable legal fees and
disbursements, incurred by Lessor as a result of the default and the exercise of
its remedies with respect thereto, (B) second, to pay Lessor an amount equal to
any unpaid rent or other amounts past due and payable plus the Casualty Value,
to the extent not previously paid by Lessee, and (C) third, to
-6-
<PAGE>
reimburse Lessee for the Casualty Value to the extent previously paid. Any
surplus remaining thereafter will be retained by Lessor.
(b) Take possession of the Equipment and hold and keep idle the same or
any portion thereof.
In addition to the foregoing remedies, Lessor may apply the Additional
Security pledged to Lessor pursuant to Section 34, (A) to compensate Lessor for
losses or damages sustained as a result of such Event of Default; and/or (B) to
reimburse Lessor for costs and expenses, including reasonable attorney's fees,
incurred by Lessor in connection with such failure to perform, whether or not
litigation or other judicial proceedings are commenced. Any surplus remaining
thereafter shall be retained by Lessor as security hereunder.
Lessee agrees to pay all internal and out-of-pocket costs of Lessor
related to the exercise of its remedies, including direct costs of its in-house
counsel and out-of-pocket legal fees and expenses. At Lessor's request, Lessee
shall assemble the Equipment and make it available to Lessor at such location as
Lessor may designate. Lessee waives any right it may have to redeem the
Equipment.
Repossession of any or all Equipment shall not terminate this Lease or
any Schedule unless Lessor notifies Lessee in writing. Any amount required to be
paid under this Section shall be increased by a service charge at the rate of
2.0% per month, or the higher rate of interest permitted by applicable law,
whichever is less, accruing from the date the Casualty Value or other amounts
are payable hereunder until such amounts are paid.
None of the above remedies is intended to be exclusive, but each is
cumulative and in addition to any other remedy available to Lessor, and all may
be enforced separately or concurrently.
18. LATE PAYMENTS. Lessee shall pay to Lender an amount equal to the
greater of 18% of all amounts owed Lessor by Lessee which are not paid when due
or $100, but in no event an amount greater than the highest rate permitted by
applicable law. If such funds have not been received by Lessor at Lessor's
place of business or by Lessor's designated agent by the date such funds are due
under this Lease, Lessor shall bill Lessee for such charges. Lessee
acknowledges that invoices for rentals due hereunder are sent by Lessor for
Lessee's convenience only. Lessee's non-receipt of an invoice will not relieve
Lessee of its obligation to make rent payments hereunder.
19. LESSOR'S EXPENSE. Lessee shall pay Lessor all costs and expenses
including reasonable attorney's fees and the fees of the collection agencies,
incurred by Lessor in enforcing any of the terms, conditions or provisions
hereof.
20. OWNERSHIP; PERSONAL PROPERTY. The Equipment shall be and remain
personal property of Lessor, and Lessee shall have no right, title or interest
therein or thereto except as expressly set forth in this Lease, notwithstanding
the manner in which it may be attached or affixed to real property, and upon
termination or expiration of the Lease term, Lessee shall have the duty and
Lessor shall have the right to remove the Equipment from the premises where the
same be located whether or not affixed or attached to the real property or any
building, at the cost and expense of Lessee.
21. ALTERATIONS; ATTACHMENTS. No alterations or attachments shall be
made to the Equipment without Lessor's prior written consent, which shall not be
given for changes
-7-
<PAGE>
that will affect the reliability and utility of the Equipment or which cannot be
removed without damage to the Equipment, or which in any way affect the value of
the Equipment for purposes of resale or re-lease.
22. FINANCING STATEMENT. Lessee will execute financing statements
pursuant to the Uniform Commercial Code. Lessee authorizes Lessor to file
financing statements signed only by Lessor (where such authorization is
permitted by law) at all places where Lessor deems necessary.
23. MISCELLANEOUS. (a) Lessee shall provide Lessor with such corporate
resolutions, financial statements and other documents as Lessor shall request
from time to time. (b) Lessee represents that the Equipment is being leased
hereunder for business purposes. (c) Time is of the essence with respect to
this Lease. (d) Lessee shall keep its books and records in accordance with
generally accepted accounting principles and practices consistently applied and
shall deliver to Lessor its annual audited financial statements, unaudited
quarterly financial statements to include any financial information given to
Lessee's Board of Directors upon expiration of the Commitment Period, and signed
by an officer of Lessee and such other unaudited financial statements as may be
reasonably requested by Lessor. (e) Any action by Lessee against Lessor for any
default by Lessor under this Lease, including breach of warranty or indemnity,
shall be commenced within one (1) year after any such cause of action accrues.
24. NOTICES. All notices hereunder shall be in writing, by registered
mail, or reliable messenger or delivery services and shall be directed, as the
case may be, to Lessor at 2401 Kerner Boulevard, San Rafael, California 94901,
Attention: Account Management and to Lessee at ViroPharma, Inc., 76 Great Valley
Parkway, Malvern, PA 19355, Attention: Mark A. McKinley.
25. ENTIRE AGREEMENT. Lessee acknowledges that Lessee has read this
Lease, understands it and agrees to be bound by its terms, and further agrees
that it and each Schedule constitute the entire agreement between Lessor and
Lessee with respect to the subject matter hereof and supersedes all previous
agreements, promises, or representations. The terms and conditions hereof shall
prevail notwithstanding any variance with the terms of any purchase order
submitted by the Lessee with respect to any Equipment covered hereby.
26. AMENDMENT. This Lease may not be changed, altered or modified except
by an instrument in writing signed by an officer of the Lessor and the Lessee.
27. WAIVER. Any failure of Lessor to require strict performance by Lessee
or any waiver by Lessor of any provision herein shall not be construed as a
consent or waiver of any other breach of the same or any other provision.
28. SEVERABILITY. If any provision of this Lease is held invalid, such
invalidity shall not affect any other provisions hereof.
29. JURISDICTION AND WAIVER OF JURY TRIAL. This Lease shall be governed
by and construed under the laws of the State of California. It is agreed that
exclusive jurisdiction and venue for any legal action between the parties
arising out of this Lease shall be in the Superior Court for Marin County,
California, or, in cases where Federal diversity jurisdiction is available, in
the United States District Court for the Northern District of California.
LESSEE, TO THE EXTENT IT MAY LAWFULLY DO SO, HEREBY WAIVES ITS RIGHT TO TRIAL BY
JURY IN ANY ACTION BROUGHT ON OR WITH RESPECT TO THIS LEASE, ANY SCHEDULE, OR
ANY AGREEMENT EXECUTED IN CONNECTION HEREWITH.
-8-
<PAGE>
30. NATURE OF TRANSACTION. Lessor makes no representation whatsoever,
express or implied, concerning the legal character of the transaction evidenced
hereby, for tax or any other purpose.
31. SECURITY INTEREST. (a) One executed copy of the Lease will be marked
"Original" and all other counterparts will be duplicated. To the extent, if
any, that this Lease constitutes chattel paper (as such term is defined in the
Uniform Commercial Code as in effect in any applicable jurisdiction) no security
interest in the lease may be created in any document other than the "Original."
(b) There shall be only one original of each Schedule and it shall be marked
"Original," and all other counterparts will be duplicates. To the extent, if
any, that any Schedule(s) to this Lease constitutes chattel paper (or as such
term is defined in the Uniform Commercial Code as in effect in any applicable
jurisdiction) no security interest in any Schedule(s) may be created in any
document other than the "Original."
32. SUSPENSION OF OBLIGATION. The obligations of Lessor hereunder will be
suspended to the extent that it is hindered or prevented from complying
therewith because of labor disturbances, including but not limited to strikes
and lockouts, acts of God, fires, storms, accidents, failure of the manufacturer
to deliver any item of Equipment, governmental regulations of interference, or
any cause whatsoever not within the sole and exclusive control of Lessor.
33. SOFTWARE. For the term of this Lease, and so long as no Event of
Default has occurred and is continuing, Lessor hereby assigns to Lessee all of
Lessor's rights under any License Agreement executed by Lessor in connection
with the Equipment (except for any right of Lessor to be reimbursed for the
License Fee). Lessee agrees to be bound by the provisions of any such License
Agreement and to perform all obligations of Lessor (except Lessor's payment
obligations) thereunder. Lessee acknowledges that all of Lessee's obligations
under the Lease with respect to the Equipment will apply equally to the
software, including but not limited to Lessee's obligation to pay rent to
Lessor.
34. ADDITIONAL SECURITY. If, upon expiration of the Commitment Period,
(x) the aggregate amount of Soft Assets is an amount greater than (y) 20% of the
aggregate amount purchased under the New Equipment Commitment, Lessee, at
Lessor's option, shall pay Lessor on July 1, 1996, the amount by which (x)
exceeds (y). Such amount will be security for the timely performance and
payment by Lessee of its obligations hereunder ("Additional Security"). Lessee
grants a security interest in the Additional Security to Lessor for the purpose
of securing its obligations under this Lease, including Lessee's obligations to
purchase Equipment upon expiration of this Lease.
If an Event of Default by Lessee occurs hereunder, the amount of the Additional
Security then retained by Lessor shall be applied against the amount of Lessee's
default obligation. In such event, Lessor may apply all or part of the
Additional Security for the following purposes:
(a) to compensate Lessor for losses or damages sustained as a result of such
Event of Default; and/or (b) to reimburse Lessor for costs and expenses,
including reasonable attorney's fees, incurred by Lessor in connection with such
failure to perform, whether or not litigation or other judicial proceedings are
commenced. Any surplus remaining thereafter shall be retained by Lessor as
security hereunder. Provided no Event of Default has occurred and is continuing
under this Lease, upon the expiration of each Symphony Equipment Schedule
hereunder, any Additional Security, if any, held by Lessor will be applied by
Lessor to the purchase requirement under such Schedules as each
-9-
<PAGE>
Schedule expires until exhausted, and if not exhausted, thence to any amount
under a purchase option which Lessee might then exercise under a New Equipment
Schedule. If such Additional Security is not exhausted upon expiration of all
Schedules, any remaining Additional Security shall be returned to Lessee.
35. COMMITMENT FEE. Lessee has paid to Lessor a commitment fee ("Fee")
of $5,000. The Fee shall be applied by Lessor first to reimburse Lessor for all
out-of-pocket UCC search costs, inspections and appraisal fees incurred by
Lessor up to an aggregate amount of $1,000, and then proportionally to the
first month's rent for each Schedule hereunder (except any Symphony Schedule)
in the proportion that the purchase price of the Equipment leased pursuant to
the Schedule bears to Lessor's Commitment (less the Symphony Commitment).
However, the portion of the Fee which is not applied to rental shall be
non-refundable except if Lessor defaults in its obligations pursuant to
Section 3.
36. FINANCE LEASE. The parties agree that this lease is a "Finance
Lease" as defined by section 10-103(a)(7) of the California Commercial Code
(Cal.Com.C.). Lessee acknowledges either (a) that Lessee has reviewed and
approved any written Supply Contract (as defined by Cal.Com.C. Section 10-103
(a)(25)) covering Equipment purchased from the "Supplier" (as defined by
Cal.Com.C. Section 10-103(a)(24)) thereof for lease to Lessee or (b) that Lessor
has informed or advised Lessee, in writing, either previously or by this Lease
of the following: (i) the identity of the Supplier; (ii) that the Lessee may
have rights under the Supply Contract; and (iii) that the Lessee may contact the
Supplier for a description of any such rights Lessee may have under the Supply
Contract. Lessee hereby waives any rights and remedies Lessee may have under
Cal.Com.C. Sections 10-508 through 522.
37. PURCHASE OR RENEWAL REQUIREMENT FOR ALL NEW EQUIPMENT SCHEDULES TO
MASTER EQUIPMENT LEASE. At the expiration of the Initial Term for New Equipment
Schedule No. 1, and notwithstanding anything to the contrary in the Lease,
upon 90 days prior written notice to Lessor, Lessee shall either:
No. 1
-----
Purchase AS-IS, WHERE-IS all, but not less than all, of the Equipment
covered under all New Equipment Schedules to this Lease at the expiration of
the Initial Term for each such Schedule for an amount equal to the
Equipment's "Fair Market Value" but in no event for an amount less than ten
percent (10%) or exceeding twenty percent (20%) of the Equipment's original
purchase price, whereupon Lessor shall issue to Lessee a Bill of Sale for
the Equipment transferring it to Lessee without any representation or
warranty whatsoever. Fair Market Value for all New Equipment Schedules
shall be determined prior to expiration of the Initial Term for New
Equipment Schedule No. 1. Fair Market Value shall be determined by Lessor.
OR
No. 2
-----
Extend the Initial Term of all New Equipment Schedules to this Lease for an
additional twelve (12) months ("Renewal Term") commencing with the end of
the Initial Term of each Schedule at a rate of 2.6824% per month of the
Equipment's original
-10-
<PAGE>
purchase price. Upon expiration of each Renewal Term, Lessor shall issue to
Lessee a Bill of Sale for the Equipment under the applicable Schedule
transferring it to Lessee without any representation or warranty
whatsoever.
IN WITNESS WHEREOF, the parties hereto have executed this Lease.
PHOENIX LEASING INCORPORATED VIROPHARMA, INC.
By: /s/ (Signature Appears Here) By: /s/ (Signature Appears Here)
------------------------------- -------------------------------
Title: Vice President Title: President and CEO
---------------------------- ----------------------------
Headquarters Location:
76 Great Valley Parkway
Malvern, PA 19355
County of Delaware
Exhibit A - Closing Memorandum
-11-
<PAGE>
Exhibit A
to MASTER EQUIPMENT LEASE
Dated December 1, 1995
CLOSING MEMORANDUM
------------------
1.* Duly executed Master Equipment Lease marked "Original."
2. Duly executed Schedule marked "Original."
3. Duly executed Certificate of Acceptance. [EXECUTE UPON ACCEPTANCE OF
EQUIPMENT]
4. Insurance Certificates.
5.* Resolutions of Lessee's Board of Directors, including an incumbency
certificate.
6.* Copy of Lessee's articles of incorporation including all amendments,
certified by the Secretary of Lessee as being true and complete and in
full force and effect.
7.* Certificate from the Secretary of State of Lessee's state of
incorporation, from the state in which Lessee's chief executive office is
located, if different, and from each state where Lessee is qualified to do
business, stating Lessee is in good standing or is authorized to transact
business, as the case may be, dated not more than thirty days prior to the
first purchase of Equipment.
8. Agreement to Allow removal of Personal Property.**
9. Purchase Agreement Assignment.
10. UCC Financing Statements.
11. Bill of Sale (for Sale-Leaseback Equipment).
12. UCC search.
13. Equipment List, in form and substance satisfactory to Lessor.
14. Lessee's most recent financial statements.
15. Certificate of Chief Financial Officer stating that no event of default
has occurred, there is no material adverse change in the financial
condition of Lessee and that the Equipment is free of any encumbrances.
16. Lessee's capitalization table showing Lessee's shareholders the percentage
of equity held by each and the number of shares or value of the shares
held by each shareholder.*
17. See Section 3 of Master Equipment Lease for additional preconditions to
closing.
18. Additional Security described in Section 34 of the Master Equipment Lease.
* First Schedule Only.
** Required if any Equipment is a fixture, i.e., attached to real property,
or located in certain states.
-12-
<PAGE>
ACCEPTANCE NOTICE
SCHEDULE NO. 1
Reference is made to the Master Equipment Lease dated as of December 1, 1995
between Phoenix Leasing Incorporated as Lessor and ViroPharma, Inc. as Lessee
(the "Lease").
Lessee confirms that the following Equipment has been received, installed and is
ready for use by Lessee. The Equipment is satisfactory in all respects for the
purposes of this Lease as of the date Lessee executes this Notice below.
Description of
Equipment
(quantity, model Purchase Price Mfr./(Street Address
and serial number) or Value Rent Vendor City, State and County)
- ------------------ -------------- ---- ------ -----------------------
See Exhibit A attached hereto. 76 Great Valley Parkway
Malvern, PA
Delaware County
Total: $80,305.00 $2,154.10
THE LEASE MAY NOT BE CHANGED, ALTERED OR MODIFIED EXCEPT BY AN INSTRUMENT IN
WRITING SIGNED BY AN OFFICER OF LESSOR AND A DULY AUTHORIZED REPRESENTATIVE OF
LESSEE.
IN WITNESS WHEREOF, Lessee has executed this Acceptance Notice as of December 1,
1995.
VIROPHARMA, INC.
By: /s/ Claude H. Nash
---------------------------------
Name: Claude H. Nash
-------------------------------
Title: President and CEO
------------------------------
Lessor's (Initials Lessee's
Initials Appear Here) Initials CHN
------------ ---------
<PAGE>
ViroPharma
Exhibit A to Schedule 1
<TABLE>
<CAPTION>
Purchase
Phoenix Tag # Serial # Description Date
- ------------- -------- ----------- --------
<S> <C> <C> <C>
79596 1033799 Buchi Rotovapor 09/05/93
79598 9304-005 Thelco Lab Oven 09/05/93
79601 P07110 Mettler Balance 09/22/93
79602 SL-41846V Baker Biosafety Cabinet 08/30/93
79605 9309-212 Precision 185 Waterbath 09/30/93
79606 9309-215 Precision 185 Waterbath 09/30/93
79607 9308-007 Precision 185 Waterbath 09/05/93
79608 211682 Nikon TMS Microscope 11/23/93
79609 8712001 Barnstead Water Treat. Syst. 08/19/93
79610 BEI-47 Flammable Storage Cabinet 08/19/93
79612 V021-00409-W Ice Maker 08/19/93
79613 H307361 Amerex Orbital Sharer 08/30/93
79618 55227AAW Nuaire CO2 Incubator 10/18/93
79634 PTG1-0893-2314 FotoDyne UV Box 09/30/93
79636 34192 Dish Washer 09/25/93
79637 9596 Dish Washer 09/25/93
79638 C80835 Autoclave 09/25/93
(No Tag) St. Charles - Casework 09/25/93
(No Tag) St. Charles 09/25/93
(No Tag) St. Charles - Hoods 09/25/93
79639 (no serial #) Dark Room Door 09/25/93
79640 RH161242 GE - 20C Freezer 09/15/93
79645 9302971 Sorval RC5B Centrifuge 09/19/93
79646 9302501 Sorval Ultra 80 Centrifuge 09/19/93
79647 ??????? Sorval RT6000D Centrifuge 09/19/93
79648 9303157 Sorval MC12V Centrifuge 09/19/93
79649 9303158 Sorval MC12V Centrifuge 09/19/93
79650 9303324 Sorval MC12V Centrifuge 09/19/93
79652 J63191931 Jordan Chromatography Cabinet 10/18/93
79667 244889 Beckman pH Meter 09/05/93
79681 Chem-9 Stirrer 09/30/93
79684 Chem-1 Stirrer 09/30/93
79697 10000495 Buchi Rotovapor 09/22/93
79709 310356 Hubbele Stor/Hot Water Htr 09/25/93
79766 A-592139 Kodak Ekatgraphic IIIA Proj. 09/19/94
79783 Book Shelving 10/18/93
79784 Book Shelving 10/18/93
79785 Book Shelving 10/18/93
79786 Book Shelving 10/18/93
79787 Book Shelving 10/18/93
79788 Book Shelving 10/18/93
79789 Book Shelving 10/18/93
79790 Book Shelving 10/18/93
79791 Book Shelving 10/18/93
79792 Book Shelving 10/18/93
79793 Book Shelving 10/18/93
79795 Typewriter 09/19/93
79802 0893-47384 Steam Generator 09/25/93
79803 Post Apple - Sink 09/25/93
</TABLE>
(1) includes: SM24 (invoice #A290398682), HB-6 (817252), GS-3 (817252) rotors
(2) includes: 3(three) Fa Miero Fxd angle rotors (invoice 73188542)
-1-
<PAGE>
ViroPharma
Exhibit A to Schedule 1
<TABLE>
<CAPTION>
Purchase
Phoenix Tag # Serial # Description Date
- ------------- -------- ----------- --------
<S> <C> <C> <C>
79805 File Cabinet 09/19/93
79806 File Cabinet 09/19/93
79836 WAR-004007 Telephone - 6 butt.
79838 WAR-004005 Telephone - Isotec - 6 butt.
79841 Post Apple - Casework 09/25/93
79842 Telephone - 6 butt.
79843 Ref-56183068 Telephone - 6 butt.
79844 Telephone
79845 Telephone - 6 butt.
79846 Telephone - 6 butt.
79847 Telephone - 6 butt.
79848 Telephone - 6 butt.
79849 WAR-004010 Telephone - Isotec - 6 butt.
79850 D000 5904 Telephone - Executone - 26 butt.
79851 Telephone
79852 D000 3127 Telephone - 26 butt.
79853 A001-7697 Telephone - 26 butt.
79854 Telephone - 26 butt.
79855 A001-7697 Telephone - Executone - 26 butt.
79856 D000 3125 Telephone - 26 butt.
79857 Telephone - Control Unit
79858 Telephone - 16 butt.
79859 Ref-RR150355 Telephone - Isotec - 16 butt.
79860 1791 Telephone - Isotec - 16 butt.
79861 Telephone
79862 Telephone
79863 Telephone
79864 Ref-56016564 Telephone - 16 butt.
79865 WAR-003209 Telephone - Isotec - 16 butt.
79866 Telephone - 6 butt.
79867 Telephone - 6 butt.
79868 Ref-RR156693 Telephone - Isotec - 16 butt.
79869 2693 Telephone - 16 butt.
79871 Telephone
79872 Telephone
79873 D000 6225 Telephone - 16 butt.
79874 Telephone
79875 Telephone
79877 Telephone - 6 butt.
- -----------------------------------------------------------------------------------------------
Total Purchase Price: $80,305.00
</TABLE>
-2-
<PAGE>
SYMPHONY EQUIPMENT SCHEDULE
---------------------------
Symphony Equipment Schedule No. 2 to Lease
Dated as of December 1, 1995
Between VIROPHARMA, INC.
and PHOENIX LEASING INCORPORATED
A. Description and Purchase Price of Equipment
-------------------------------------------
Description of
Equipment
(quantity, model Purchase Mfr./ (Street Address
and serial number) Price Rent Vendor City, State and County)
- ------------------ -------- ------ ------ ------------------------
See Exhibit A attached hereto. 76 Great Valley Parkway
Malvern, PA
Delaware County
Total: $30,695.00 $823.36
B. Terms
-----
Initial Term: The Initial Term shall commence on the date the Equipment is
received, installed and accepted for use, as shown on the
Acceptance Notice, and continue for 48 full months after the
"Rent Start Date."
Rent Start Date: December 1, 1995
Lease Rate Factor (expressed as a percentage of Equipment's Value set forth
above): 2.6824%.
Monthly Rental Payments in advance.
Initial Rent Due: Payable on the Rent Start Date shall be the Rental Amount
including any sales or use tax.
C. Invoice Information: Lessee's and Lessor's addresses for invoice purposes
-------------------
for the Equipment on the Schedule shall be as follows:
Lessee's Invoice Address: Remit Monthly Rental Amount To:
ViroPharma, Inc. Phoenix Leasing Incorporated
76 Great Valley Parkway P.O. Box 200432
Malvern, PA 19355 Dallas, TX 75320-0432
Attention: Mark A. McKinley
D. Casualty Values: See attachment hereto.
---------------
<PAGE>
E. Special Provisions: 1. Lessor's payment for Equipment hereunder is
------------------
conditioned on Lessor's satisfaction that there has been no adverse change
in Lessee's financial condition subsequent to initial credit approval, 2.
Sale Leaseback Addendum, and 3. Purchase Requirement Rider.
LESSOR AND LESSEE AGREE THAT THIS SCHEDULE SHALL CONSTITUTE A LEASE OF THE
EQUIPMENT DESCRIBED ABOVE, SUBJECT TO THE TERMS AND CONDITIONS OF THIS SCHEDULE
AND OF THE MASTER EQUIPMENT LEASE DATED DECEMBER 1, 1995 BETWEEN LESSEE AND
LESSOR. THE TERMS AND CONDITIONS OF SUCH MASTER EQUIPMENT LEASE ARE HEREBY
INCORPORATED BY REFERENCE AND MADE A PART HEREOF TO THE SAME EXTENT AS IF SUCH
TERMS AND CONDITIONS WERE SET FORTH IN FULL HEREIN.
PHOENIX LEASING INCORPORATED VIROPHARMA, INC.
BY: Signature Illegible By: Claude H. Nash
--------------------------- --------------------------
Title: Title: President and CEO
------------------------ ------------------------
Date: Date: December 1, 1995
------------------------- -------------------------
<PAGE>
Attachment to Symphony Equipment Schedule No. 2
CASUALTY VALUES
<TABLE>
<CAPTION>
Month of % of Original Equipment Month of % of Original Equipment
Lease Term Purchase Price Lease Term Purchase Price
- ---------- ----------------------- ---------- -----------------------
<S> <C> <C> <C>
1 125.00 25 73.94
2 122.87 26 71.81
3 120.74 27 69.68
4 118.62 28 67.55
5 116.49 29 65.43
6 114.36 30 63.30
7 112.23 31 61.17
8 110.11 32 59.04
9 107.98 33 56.91
10 105.85 34 54.79
11 103.72 35 52.66
12 101.60 36 50.53
13 99.47 37 48.40
14 97.34 38 46.28
15 95.21 39 44.15
16 93.09 40 42.02
17 90.96 41 39.89
18 88.83 42 37.77
19 86.70 43 35.64
20 84.57 44 33.51
21 82.45 45 31.38
22 80.32 46 29.26
23 78.19 47 27.13
24 76.06 48 25.00
Thereafter 25.00
</TABLE>
Lessor's Lessee's
Initials /s/[INTIALS APPEARS HERE] Initials /s/ CHN
------------------------- ----------
649.12.95
<PAGE>
ViroPharma
Exhibit A to Schedule 2
<TABLE>
<CAPTION>
Purchase
Phoenix Tag # Serial # Description Date
- ------------- -------- ----------- ---------
<S> <C> <C> <C>
79626 106929 Ludlum Survey Meter 12/21/94
79629 434 BioRad Power Supply 04/21/94
79630 186BR008792 BioRad Gel Dryer 04/21/94
79642 4090563 Wallac Liq. Scint. Counter 06/23/94
79653 AL166521 GE - 20C Freezer 03/28/94
79656 04609 VMAX Refurb Rate Reader 02/22/94
79657 01826 Stoval Belly Dancer 02/22/94
79677 N95581 Mettler Balance 10/18/93
79678 Cylinder Cart 10/18/93
79679 Utility Cart 10/18/93
79692 Chem-2 Variable Autotransformer 12/10/93
79693 Chem-6 Variable Autotransformer 12/10/93
79694 Chem-6 Variable Autotransformer 12/10/93
79695 Chem-8 Variable Autotransformer 12/10/93
79696 Chem-8 Variable Autotransformer 12/10/93
79699 137534 Rainin HPLC 04/21/94
79700 140211-01 Welch Pump 04/21/94
79702 0694 Parr Hydrogenation App 07/14/94
79767 93-9005 Gas Regulator 11/12/93
79768 93-8-023 Gas Regulator 11/12/93
79770 940-R1015 Gas Regulater 06/23/94
79771 File Cabinet 02/22/94
79772 File Cabinet 02/22/94
79773 File Cabinet 02/22/94
79774 File Cabinet 02/22/94
79775 File Cabinet 02/22/94
79776 File Cabinet 02/22/94
79777 File Cabinet 02/22/94
79778 File Cabinet 02/22/94
79779 File Cabinet 02/22/94
79780 File Cabinet 02/22/94
79781 File Cabinet 02/22/94
79782 File Cabinet 02/22/94
</TABLE>
- --------------------------------------------------------------------------------
Total Purchase Price: $30,695.00
lao/928
<PAGE>
Rider No. 1
to Symphony Equipment Schedule No. 2
of MASTER EQUIPMENT LEASE
Dated as of December 1, 1995
Between VIROPHARMA, INC.
and PHOENIX LEASING INCORPORATED
PURCHASE REQUIREMENT
--------------------
At the expiration of the Initial Term of this Schedule, and notwithstanding
anything to the contrary in the Lease, Lessee shall purchase AS-IS, WHERE-IS
all, but not less than all, of the Equipment covered under this Schedule at the
expiration of the Initial Term for 20% of the Equipment's original value under
the Lease, whereupon Lessor shall issue to Lessee a Bill of Sale for the
Equipment transferring it to Lessee without any representation or warranty
whatsoever.
Lessee shall be responsible for all applicable taxes in connection with any
purchase of Equipment by Lessee.
Lessor's Lessee's
Initials /s/[INITIALS APPEARS HERE] Initials /s/ CHN
-------------------------- -------------
649.12.95
<PAGE>
ACCEPTANCE NOTICE
SCHEDULE NO. 2
Reference is made to the Master Equipment Lease dated as of December 1, 1995
between Phoenix Leasing Incorporated as Lessor and ViroPharma, Inc. as Lessee
(the "Lease").
Lessee confirms that the following Equipment has been received, installed and is
ready for use by Lessee. The Equipment is satisfactory in all respects for the
purposes of this Lease as of the date Lessee executes this Notice below.
<TABLE>
<CAPTION>
Description of
Equipment
(quantity, model Purchase Price Mfr./(Street Address
and serial number) or Value Rent Vendor City, State and County)
- ------------------ ---------- -------- ------ ------------------------
<S> <C> <C> <C> <C>
See Exhibit A attached hereto. 76 Great Valley Parkway
Malvern, PA
Delaware County
Total: $30,695.00 $823.36
</TABLE>
THE LEASE MAY NOT BE CHANGED, ALTERED OR MODIFIED EXCEPT BY AN INSTRUMENT IN
WRITING SIGNED BY AN OFFICER OF LESSOR AND A DULY AUTHORIZED REPRESENTATIVE OF
LESSEE.
IN WITNESS WHEREOF, Lessee has executed this Acceptance Notice as of
December 1, 1995.
VIROPHARMA, INC.
By: /s/ Claude H. Nash
-------------------------
Name: Claude H. Nash
-----------------------
Title: President and CEO
----------------------
Lessor's Lessee's
Initials [INITIALS APPEAR HERE] Initials /s/ CHN
---------------------- -------------
649.12.95
<PAGE>
ViroPharma
Exhibit A to Schedule 2
Purchase
Phoneix Tag # Serial # Description Date
- ------------- -------- ----------- --------
79626 106929 Ludlum Survey Meter 12/21/94
79629 434 BioRad Power Supply 04/21/94
79630 186BR008792 BioRad Gel Dryer 04/21/94
79642 4090563 Wallac Liq. Scint. Counter 06/23/94
79653 AL166521 GE - 20C Freezer 03/28/94
79656 04609 VMAX Refurb Rate Reader 02/22/94
79657 01826 Stoval Belly Dancer 02/22/94
79677 N95581 Mettler Balance 10/18/93
79678 Cylinder Cart 10/18/93
79679 Utility Cart 10/18/93
79692 Chem-2 Variable Autotransformer 12/10/93
79693 Chem-6 Variable Autotransformer 12/10/93
79694 Chem-6 Variable Autotransformer 12/10/93
79695 Chem-8 Variable Autotransformer 12/10/93
79696 Chem-8 Variable Autotransformer 12/10/93
79699 137534 Rainin HPLC 04/21/94
79700 140211-01 Welch Pump 04/21/94
79702 0694 Parr Hydrogenation App 07/14/94
79767 93-9005 Gas Regulator 11/12/93
79768 93-8-023 Gas Regulator 11/12/93
79770 940-R1015 Gas Regulator 06/23/94
79771 File Cabinet 02/22/94
79772 File Cabinet 02/22/94
79773 File Cabinet 02/22/94
79774 File Cabinet 02/22/94
79775 File Cabinet 02/22/94
79776 File Cabinet 02/22/94
79777 File Cabinet 02/22/94
79778 File Cabinet 02/22/94
79779 File Cabinet 02/22/94
79780 File Cabinet 02/22/94
79781 File Cabinet 02/22/94
79782 File Cabinet 02/22/94
- --------------------------------------------------------------------------------
Total Purchase Price: $30,695.00
<PAGE>
SYMPHONY EQUIPMENT SCHEDULE
---------------------------
Symphony Equipment Schedule No. 1 to Lease
Dated as of December 1, 1995
Between VIROPHARMA, INC.
and PHOENIX LEASING INCORPORATED
A. Description and Purchase Price of Equipment
-------------------------------------------
Description of
Equipment
(quantity, model Purchase Mfr./ (Street Address
and serial number Price Rent Vendor City, State and County)
- ----------------- -------- ---- ------ ------------------------
See Exhibit A attached hereto. 76 Great Valley Parkway
Malvern, PA
Delaware County
Total: $80,305.00 $2,154.20
B. Terms
-----
Initial Term: The Initial Term shall commence on the date the Equipment is
received, installed and accepted for use, as shown on the
Acceptance Notice, and continue for 48 full months after the
"Rent Start Date."
Rent Start Date: December 1, 1995
Lease Rate Factor (expressed as a percentage of Equipment's Value set forth
above): 2.6824%
Monthly Rental Payments in advance.
Initial Rent Due: Payable on the Rent Start Date shall be the Rental Amount
including any sales or use tax.
C. Invoice Information: Lessee's and Lessor's addresses for invoice purposes
-------------------
for the Equipment on the Schedule shall be as follows:
Lessee's Invoice Address: Remit Monthly Rental Amount To:
ViroPharma, Inc. Phoenix Leasing Incorporated
76 Great Valley Parkway P.O. Box 200432
Malvern, PA 19355 Dallas, TX 75320-0432
Attention: Mark A. McKinley
D. Casualty Values: See attachment hereto.
---------------
<PAGE>
E. Special Provisions: 1. Lessor's payment for Equipment hereunder is
------------------
conditioned on Lessor's satisfaction that there has been no adverse change
in Lessee's financial condition subsequent to initial credit approval, 2.
Sale Leaseback Addendum, and 3. Purchase Requirement Rider.
LESSOR AND LESSEE AGREE THAT THIS SCHEDULE SHALL CONSTITUTE A LEASE OF THE
EQUIPMENT DESCRIBED ABOVE, SUBJECT TO THE TERMS AND CONDITIONS OF THIS SCHEDULE
AND OF THE MASTER EQUIPMENT LEASE DATED DECEMBER 1, 1995 BETWEEN LESSEE AND
LESSOR. THE TERMS AND CONDITIONS OF SUCH MASTER EQUIPMENT LEASE ARE HEREBY
INCORPORATED BY REFERENCE AND MADE A PART HEREOF TO THE SAME EXTENT AS IF SUCH
TERMS AND CONDITIONS WERE SET FORTH IN FULL HEREIN.
PHOENIX LEASING INCORPORATED VIROPHARMA, INC.
By: [SIGNATURE APPEARS HERE] By: [SIGNATURE APPEARS HERE]
------------------------- -------------------------
Title: Title: President and CEO
---------------------- ----------------------
Date: Date: December 1, 1995
----------------------- -----------------------
<PAGE>
Attachment to Symphony Equipment Schedule No. 1
CASUALTY VALUES
Month of % of Original Equipment Month of % of Original Equipment
Lease Term Purchase Price Lease Term Purchase Price
- ---------- ----------------------- ---------- -----------------------
1 125.00 25 73.94
2 122.87 26 71.81
3 120.74 27 69.68
4 118.62 28 67.55
5 116.49 29 65.43
6 114.36 30 63.30
7 112.23 31 61.17
8 110.11 32 59.04
9 107.98 33 56.91
10 105.85 34 54.79
11 103.72 35 52.66
12 101.60 36 50.53
13 99.47 37 48.40
14 97.34 38 46.28
15 95.21 39 44.15
16 93.09 40 42.02
17 90.96 41 39.89
18 88.83 42 37.77
19 86.70 43 35.64
20 84.57 44 33.51
21 82.45 45 31.38
22 80.32 46 29.26
23 78.19 47 27.13
24 76.06 48 25.00
Thereafter 25.00
Lessor's Lessee's
Initials /s/ [INITIALS APPEAR HERE] Initials /s/ [INITIALS APPEAR HERE]
--------------------------- ---------------------------
<PAGE>
ViroPharma
Exhibit A to Schedule 1
Purchase
Phoenix Tag # Serial # Description Date
------------- -------- ----------- --------
79596 1033799 Buchi Rotovapor 09/05/93
79598 9304-005 Thelco Lab Oven 09/05/93
79601 P07110 Mettler Balance 09/22/93
79602 SL-41846V Baker Biosafety Cabinet 08/30/93
79605 9309-212 Precision 185 Waterbath 09/30/93
79606 9309-215 Precision 185 Waterbath 09/30/93
79607 9308-007 Precision 185 Waterbath 09/05/93
79608 211682 Nikon TMS Microscope 11/23/93
79609 8712001 Barnstead Water Treat. Syst. 08/19/93
79610 BEI-47 Flammable Storage Cabinet 08/19/93
79612 V021-00409-W Ice Maker 08/19/93
79613 H307361 Amerex Orbital Sharer 08/30/93
79618 55227AAW Nuaire CO2 Incubator 10/18/93
79634 PTG1-0893-2314 FotoDyne UV Box 09/30/93
79636 34192 Dish Washer 09/25/93
79637 9596 Dish Washer 09/25/93
79638 C80835 Autoclave 09/25/93
(No Tag) St. Charles - Casework 09/25/93
(No Tag) St. Charles 09/25/93
(No Tag) St. Charles - Hoods 09/25/93
79639 (no serial #) Dark Room Door 09/25/93
79640 RH161242 GE - 20C Freezer 09/15/93
/1/79645 9302971 Sorval RC5B Centrifuge 09/19/93
79646 9302501 Sorval Ultra 80 Centrifuge 09/19/93
79647 ??????? Sorval RT6000D Centrifuge 09/19/93
/2/79648 9303157 Sorval MC12V Centrifuge 09/19/93
/2/79649 9303158 Sorval MC12V Centrifuge 09/19/93
/2/79650 9303324 Sorval MC12V Centrifuge 09/19/93
79652 J63191931 Jordan Chromatography Cabinet 10/18/93
79667 244889 Beckman pH Meter 09/05/93
79681 Chem-9 Stirrer 09/30/93
79684 Chem-1 Stirrer 09/30/93
79697 10000495 Buchi Rotovapor 09/22/93
79709 310356 Hubbele Stor/Hot Water Htr 09/25/93
79766 A-592139 Kodak Ekatgraphic IIIA Proj. 09/19/94
79783 Book Shelving 10/18/93
79784 Book Shelving 10/18/93
79785 Book Shelving 10/18/93
79786 Book Shelving 10/18/93
79787 Book Shelving 10/18/93
79788 Book Shelving 10/18/93
79789 Book Shelving 10/18/93
79790 Book Shelving 10/18/93
79791 Book Shelving 10/18/93
79792 Book Shelving 10/18/93
79793 Book Shelving 10/18/93
79795 Typewriter 09/19/93
79802 0893-47384 Steam Generator 09/25/93
79803 Post Apple - Sink 09/25/93
/1/ Includes: SM24 (invoice # A290398682), HB-6 (817252) GS-3 (817252)
rotors
/2/ Includes: 3(three) Fa Micro Fxd angle rotors (invoice # 73188542)
-1-
<PAGE>
ViroPharma
Exhibit A to Schedule 1
Purchase
Phoenix Tag # Serial # Description Date
- ------------- -------- ----------- --------
79805 File Cabinet 09/19/93
79806 File Cabinet 09/19/93
79836 WAR-004007 Telephone - 6 butt.
79838 WAR-004005 Telephone - Isotec - 6 butt.
79841 Post Apple - Casework 09/25/93
79842 Telephone - 6 butt.
79843 Ref-56183068 Telephone - 6 butt.
79844 Telephone
79845 Telephone - 6 butt.
79846 Telephone - 6 butt.
79847 Telephone - 6 butt.
79848 Telephone - 6 butt.
79849 WAR-004010 Telephone - Isotec - 6 butt.
79850 D000 5904 Telephone - Executone - 26 butt.
79851 Telephone
79852 D000 3127 Telephone - 26 butt.
79853 A001-7697 Telephone - 26 butt.
79854 Telephone - 26 butt.
79855 A001-7697 Telephone - Executone - 26 butt.
79856 D000 3125 Telephone - 26 butt.
79857 Telephone - Control Unit
79858 Telephone - 16 butt.
79859 Ref-RR150355 Telephone - Isotec - 16 butt.
79860 1791 Telephone - Isotec - 16 butt.
79861 Telephone
79862 Telephone
79863 Telephone
79864 Ref-56016564 Telephone - 16 butt.
79865 WAR-003209 Telephone - Isotec - 16 butt.
79866 Telephone - 6 butt.
79867 Telephone - 6 butt.
79868 Ref-RR156693 Telephone - Isotec - 16 butt.
79869 2693 Telephone - 16 butt.
79871 Telephone
79872 Telephone
79873 D000 6225 Telephone - 16 butt.
79874 Telephone
79875 Telephone
79877 Telephone - 6 butt.
- --------------------------------------------------------------------------------
Total Purchase Price: $80,305.00
-2-
lao/928
<PAGE>
Rider No. 1
to Symphony Equipment Schedule No. 1
of MASTER EQUIPMENT LEASE
Dated as of December 1, 1995
Between VIROPHARMA, INC.
and PHOENIX LEASING INCORPORATED
PURCHASE REQUIREMENT
--------------------
At the expiration of the Initial Term of this Schedule, and notwithstanding
anything to the contrary in the Lease, Lessee shall purchase AS-IS, WHERE-IS
all, but not less than all, of the Equipment covered under this Schedule at the
expiration of the Initial Term for 20% of the Equipment's original value under
the Lease, whereupon Lessor shall issue to Lessee a Bill of Sale for the
Equipment transferring it to Lessee without any representation or warranty
whatsoever.
Lessee shall be responsible for all applicable taxes in connection with any
purchase of Equipment by Lessee.
Lessor's Lessee's
Initials Initials /s/ CHN
--------------- -------------
649.12.95
<PAGE>
==================
AGREEMENT *
---------
==================
This Agreement is made as of the 22nd day of December 1995, by and between
Sanofi, a corporation organized and existing under the laws of France, having
its registered office at 32-34 rue Marbeuf - 75008 Paris - France ( hereinafter
referred to as "Licensor") on the one hand, and ViroPharma, Inc., a corporation
organized and existing under the laws of Delaware, having its principal offices
at 76, Great Valley Parkway, Malvern PA 19355 - USA (hereinafter referred to as
"Licensee") on the other hand
WITNESSETH
----------
- - WHEREAS, Licensor owns certain intellectual property rights including patent
rights, and certain know-how and technical data, relating to pharmaceutical
compounds known as WIN 63843 and WIN 68881,
- - WHEREAS, Licensee is interested in obtaining a license to develop,
manufacture and market any pharmaceutical specialties containing the above
compounds in the Territory as defined below,
- - WHEREAS, Licensor and Licensee have agreed on certain terms and conditions of
the future license to be signed between them in accordance with the "Heads of
Terms" signed on June 9, 1995,
- -WHEREAS, the purpose of this Agreement is to define Licensee's and Licensor's
rights and obligations with respect to such license.
NOW, THEREFORE, in consideration of the above premises and of the mutual
covenants hereinafter contained, Licensee and Licensor hereby agree as follows:
ARTICLE 1 - DEFINITIONS
- -----------------------
The following terms as used in this Agreement shall have the following meaning
unless otherwise indicated:
1. Party or Parties shall mean respectively either Licensee or Licensor as
the context requires, or both Licensee and Licensor.
2. Agreement shall mean this Agreement in its entirety including Schedules.
* Portions of this exhibit were omitted and filed separately with the Secretary
of the Commission pursuant to an application for confidential treatment filed
with the Commission pursuant to Rule 406 under the securities Act of 1933. Such
portions are marked by "X" or the word "Redacted".
1
<PAGE>
3. Affiliate(s) shall mean either a corporation or other business entity,
whether de jure or de facto, which, directly or indirectly, is owned by or
is common ownership with a party hereto to the extent of at least fifty
percent (50%) of the equity (or such lesser percentage which is the maximum
allowed to be owned by a foreign corporation in a particular jurisdiction)
having the power to vote on or direct the affairs of the entity and any
person, firm partnership, corporation or other entity actually controlled
by, controlling or under common control with a party to this Agreement.
4. Products shall mean any preparation in finished product form for use in the
Selected Indication and containing one of the Compounds as active
ingredient.
5. Compounds means the active ingredients of the Products known as WIN 63843 or
WIN 68881, Licensee having a right of first refusal in the Territory on any
other analogues that Licensor would have developed.
6. Selected Indications means picornavirus cold therapy, picornavirus cold
prophylaxis and enterovirus therapy, Licensee having a right of first
refusal on any other indications to be developed in the Territory.
7. Territory shall mean the United States of America (including U.S.
Territories) and Canada.
8. Trademarks shall mean the trademarks jointly selected by Licensor and
Licensee under which the Products will be marketed in the Territory, which
will be registered by, and in the name of, Licensor.
9. Patents shall mean the patents and patent applications owned or controlled
by Licensor, relating to the Compounds, as listed in Schedule 1 attached
hereto, and any additions, divisions, continuations, continuations-in-part,
amendments, amalgamations, reissues and re-examination of such applications
or patents, including any extensions and renewals thereof, in whatever form
and by whatever legal title they are granted (i.e. supplementary protection
certificate).
10. Know-How and Technical Data shall mean all the know-how, scientific,
commercial and technical data and other information presently available or
which may become available from time to time, by Licensor or any of its
Affiliates in the Territory, including but not limited to secret and
confidential formulae, processes, procedures, methods and specifications
concerning the Compounds, which will be disclosed by Licensor to Licensee
for exclusive use in the Territory, and more generally any further
information which are available and which Licensor feels is required by
Licensee to ensure execution of this Agreement.
11. Registrations shall mean the New Drug Approvals or Product License
Applications, which will be filed by the Licensee with the competent health
authorities of the Territory at its own costs and expense, and any other
authorization of any competent authority in the Territory allowing the
manufacture and the marketing of the Products in the Territory.
-2-
<PAGE>
12. Development Costs shall mean (i) any direct external costs, i.e. expenses
invoiced by third parties that are directly related to the development of
the Products or attributable to the activities of a scientific department
with respect to the Product, and (ii) any internal costs, i.e. actual costs
incurred by Licensee and/or Licensor, as the case may be, with respect to
the development of the Products, and calculated on the basis of time spent,
allocation for occupancy and facilities and computer operations on basis to
be agreed upon between the Parties as set forth in Appendix A attached
hereto.
13. Net Sales shall mean the invoiced sales of the Products after deducting:
(a) Customary trade discounts; reasonable quantity and cash discounts;
(b) allowances or credits to customers on account of rejection or return
of Products or on account of retroactive price reductions affecting
Products;
(c) freight and insurance included in the price;
(d) value added, sales, use or turnover taxes, and excise taxes or customs
duties or local charges or taxes, included in the invoiced amount;
14. Sub-license(s) shall mean any right granted hereunder to Licensee to be
sub-licensed to a third party in the Territory with Licensor's prior
written consent, for the performance of the whole or part of this
Agreement.
15. Sub-Licensee(s) shall mean any entity or person which is granted
Sub-License rights under Article 2.2.
ARTICLE 2-GRANT OF RIGHTS
- -------------------------
2.1 Subject to all the terms and conditions of this Agreement, Licensor hereby
grants to Licensee under the Patent, and the Know-How and Technical Data,
the sole and exclusive right and license to develop, make have made, use
market and sell the Compounds and the Products for the Selected
Indications in the Territory, under the Trademarks.
2.2 Licensor hereby authorizes Licensee to appoint Sub-licensees in the
Territory, for the performance of its obligations hereunder, with
Licensor's prior written consent which will not be unreasonably withheld.
2.3 No Sub-license agreement nor any of its provisions shall relieve Licensee
from any of its obligations to Licensor under this Agreement.
2.4 Any Sub-license(s) agreement(s) to be negotiated by Licensee shall be
consistent with the terms and conditions herein contained, and shall be
transmitted to Licensor for prior review and approval.
<PAGE>
ARTICLE 3-DEVELOPMENT WORK
- --------------------------
3.1 Licensee shall use its best efforts and diligence to develop and register
the Products for the Selected Indication in the Territory, by performing
various scientific and technical studies (the "Development Work") in
accordance with the terms and conditions of this Agreement, including the
development plan attached as Schedule 2 reflecting clearly the objectives,
procedures, decisions points, means and obligations during the Development
Work (the "Development Plan").
3.2 Promptly after completion of data analysis from Phase llb performed by
Licensee, Licensor shall have, for each Product developed by Licensee, an
option of:
(a) joining Licensee in the future Development Work of the Products for
the purpose of preparing a common dossier for Registrations of the
Products in the Territory and in the European Union, Phase III being
the responsibility of Licensee in the Territory, and being the
responsibility of Licensor in any other countries outside the
Territory. In such case, Licensor shall reimburse [XXX] of the
Development Costs incurred by Licensee as from the effective date of
this Agreement. Thereafter, the Parties will share equally all future
Developement Costs incurred as from the date Licensor decides to join
Licensee in the Developement Work described in Schedule 2 pursuant to
statements established by mutual agreement of the Parties, and
reflecting all such future Developement Costs incurred within each
calendar quarter, or
(b) using all information and data developed by Licensee under this
Agreement for applying Registrations of the Products in the European
Union, without joining Licensee in the Developement Work of the
Product in the Territory. Upon Licensor's request, Licensee agrees to
assist Licensor in any scientific preparation and presentation of the
dossier to the relevant health authorities in the European Union.
Licensor's option shall be exercised by notifying Licensee in writing at
the latest three (3) months after the receipt of Licensee's notification of
completion of data analysis from such Phase llb. In all cases, and subject
to Licensee's prior written approval which shall not be unreasonably
withheld, Licensor shall have the right to use all information and data
developed by Licensee and included in Licensee's dossier, free of charge
subject to the provisions of Articles 4 and 6 below relating to
"Milestones" and "Royalties", for applying for Registrations of the
Products in any country outside the Territory.
3.3 Each Party shall have and retain sole and exclusive title to all inventions
and discoveries which are made, conceived, reduced to practice or generated
by its own employees or agents in the course of, or as a result of,
activities pursuant to this Agreement. Licensor shall have an exclusive
unrestricted right outside the Territory, to make, have made, use, market
and sell all inventions and discoveries developed under this Agreement by
Licensee relating to the Compounds and/or the Products, subject to royalty
payment as provided in Article 6.2 below, provided that no other
remuneration shall be due to Licensee by Licensor for such use.
4
<PAGE>
3.4 In case of joint inventions or joint discoveries made during any co-
development work performed by the Parties under this Agreement, it is
hereby agreed that such joint inventions or discoveries shall be jointly
owned by the Parties. Licensor shall have an exclusive unrestricted royalty
free right to make, have made, use, market and sell such joint inventions
and discoveries outside the Territory, and Licensee shall have a royalty
free right to use such joint inventions or joint discoveries within the
Territory, subject to Article 5 of this Agreement.
ARTICLE 4 - MILESTONE FEES
- --------------------------
In consideration of the license rights granted to Licensee hereunder, Licensee
shall pay to Licensor the following milestone fees, the payment of which shall
be conditional within 60 days after the occurrence of any related event(s):
<TABLE>
<S> <C>
(a) upon signature of this Agreement: ............................ USD 1.000.000
(b) enrollment of the first patient in Phase III, or no later than 3 years
after the signature of this agreement, whichever is sooner:
(i) if Licensor has opted for case (a) of Article 3.2 above.. USD 2.000.000
(ii) if Licensor has opted for case (b) of Article 3.2 above.. [xxxxxxxxxxxx]
(c) US NDA submission, or no later than 3 years after initiation
of Phase III, whichever is sooner: ...........................
(i) if Licensor has opted for case (a) of Article 3.2 above.. [xxxxxxxxxxxx]
(ii) if Licensor has opted for case (b) of Article 3.2 above.. [xxxxxxxxx]
(d) PLA submission by Licensor in one of the following major European
Union countries (France, UK, Germany, Italy):
(i) if Licensor has opted for case (a) of Article 3.2 above.. [xxxxxxxxxxxx]
(ii) if Licensor has opted for case (b) of Article 3.2 above.. [xxxxxxxxx]
(e) US NDA approval:
(i) if Licensor has opted for case (a) of Article 3.2 above.. [xxxxxxxxxxxx]
(ii) if Licensor has opted for case (b) of Article 3.2 above.. [xxxxxxxxxxxx]
(f) PLA approval in one major European Union country:
(i) if Licensor has opted for case (a) of Article 3.2 above.. [xxxxxxxxxxxx]
(ii) if Licensor has opted for case (b) of Article 3.2 above.. [xxxxxxxxxxxx]
</TABLE>
5
<PAGE>
ARTICLE 5 - MARKETING
- ---------------------
5.1 Promptly after completion of any Development Work as provided in the
Development Plan attached hereto as Schedule 2 as may be amended from time
to time in a written document signed by both Parties Licensee shall apply
for Registrations of the Products for the Selected Indications in the
Territory. The Parties recognize that development is a dynamic process and
that the development tasks, timelines, and budgets may require adjustments
from time to time for scientific, medical or regulatory reasons, and agree
to cooperate with each other to make such adjustments and changes as are
necessary in the best interests of the Products.
5.2 Licensee shall have the option to market the Products in the Territory (i)
either on an exclusive basis or (ii) in joint marketing with Licensor or a
third party, such option to be exercized within ninety (90) days after the
filing of the US NDA. Such marketing operations performed by Licensee shall
comply with Licensor's reasonable instructions, if any, and shall be made
in accordance with current laws, rules and regulations applicable in the
Territory with respect to the promotion and the sale of pharmaceutical
products. Licensee shall inform Licensor of the proposed marketing
operations and provide Licensor with a copy of Licensee's marketing plans
and Licensor shall have the right to comment on such operations and plans.
5.3 If Licensee has opted for case (i) in Section 5.2 above, it undertakes to
use its best efforts to find markets for, notably through serious trade
canvassing and reasonable advertising, the Products in the Territory.
5.4 [xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx]
5.5 Licensor shall be free to market the Products directly, or through any
company it may designate in any country outside the Territory. Should
Licensor decide, for whatever reason, not to market the Products in any
country within the European Union, Licensor shall appoint a licensee for
such country with the assistance of Licensee, if requested by Licensor.
5.6 It is hereby expressly understood that if Licensor decides to grant a
license on the Products in Mexico, Licensor shall ensure that this
appointed Mexican licensee shall refrain from Marketing, selling or
distributing the Products into the Territory.
ARTICLE 6 - ROYALTIES
- ---------------------
6.1 In consideration of the Patent and Know-How and Technical Data license
rights granted to Licensee hereunder, Licensee shall pay to Licensor a royalty
of [xxxxxxxxxxxxxxxxxxxx] on Net Sales in the Territory, until the expiration,
lapse, abandonment or invalidation of the last Patent covering the Products or
any extension thereto, if any.
6
<PAGE>
In consideration of the trademark license rights granted to Licensee
hereunder and in addition to the royalty on Patents and Know-How and
Technical Data as referred to above, Licensee shall pay to Licensor a
royalty of [xxxxxxxxxxxxxxxxx] on Net Sales in the Territory until the
expiration or termination of this Agreement.
6.2 In consideration of the Development Work performed by Licensee under this
Agreement, Licensor agrees to pay to Licensee a developer royalty as
follows:
(a) a royalty on Net Sales made by Licensor or any of its sub-licensee as
the case may be, in the European Union, of:
(i) [xxxxxxxxxxxxxxxx] in the event that Licensor has opted for
case (a) of Article 3.2 above.
(ii) [xxxxxxxxxxxxxxxxxx] in the event that Licensor has opted for
case (b) of Article 3.2 above, and Licensor has not been
required by the relevant health authorities in the European
Union to undertake additional Pivotal Phase III studies for the
intended indication and labeling set forth in the Development
Plan; in addition, [xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx] will
be paid to Licensee within 60 days of Licensor's option, or
(iii) in the event that Licensor has opted for case (b) of Article
3.2 above, and significant additional studies have been
required by the relevant health authorities in the European
Union for Registration, Licensee will conduct such required
studies at its expense. The royalties and milestone fees to be
paid would remain as outlined in (ii) above.
(b) a royalty on Net Sales made by Licensor or any of its sub-licensee as
the case may be, in Japan or outside the European Union, of [xxxxxxx
xxxxxxxx] ; in addition, [xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxx] will be paid to Licensee by Licensor within 90 days of
the submission of the Product for approval in Japan.
6.3 In the event that during the term of this Agreement, Licensee is willing to
market and sell a Product which comprises Compound and at least one other
additional therapeutically or prophylactically active ingredient which is
not a Compound (hereinafter referred to as a "Combination Product"), it
shall first receive Licensor's prior written consent which shall not be
unreasonably withheld. Then, the Parties shall discuss in good faith
royalties on Net Sales of said Combination Product which shall be based on
the relative values of Compound and the other therapeutically or
prophylactically active ingredients contained in the Combination Product,
provided however that, in no event shall the royalty rate applicable to any
Combination Product exceed the royalty rates otherwise specified in this
Article 6.
6.4 In the event that any court or other legal or administrative tribunal from
which no appeal is or can be taken, uphold any third party claim
challenging the validity, scope or enforceability of any of the Patents
during the term of this Agreement, then the Parties shall agree upon a
reasonable royalty fee to be paid by Licensee to Licensor in consideration
of the right to use the Know-How and Technical Data in the Territory, as no
royalty based on any of the Patents could be reasonably expected as a
result of such legal decision.
7
<PAGE>
6.5 In the event that a governmental agency in any country of the Territory,
grants or compels Licensee or Licensor to grant license rights to any third
party for the Products, Licensee shall have the benefit, in such country,
of the terms granted to such third party, to the extend that such terms are
more favorable than those of this Agreement.
6.6 Either Party shall keep special accounts in which shall appear any and all
elements necessary for an accurate assessment of its Net Sales on a country
by country basis. Such special accounts shall be made available to the
other Party upon its request. Any payment to be paid for the purpose of
this Article 6 shall be made in US dollars by bank wire within 60 (sixty)
days end of quarter, provided that Licensor shall use the average of the
daily rates for the calendar quarter invoiced as issued by the "Banque de
France".
6.7 Taxes required to be paid or withheld on payments made hereunder shall be
deducted from any amount otherwise due, provided that receipts
acknowledging payment thereon shall be submitted to the payee promptly
whenever taxes are so deducted.
ARTICLE 7 - PURCHASE AND SUPPLY OF COMPOUNDS
- --------------------------------------------
7.1 Licensor will, within 120 days of the receipt of Licensee's written
request, supply, or have supplied, Licensee with all the Compounds
necessary for performing its Development Work including any clinical study,
directly or through any designated supplier. The Compounds so delivered
shall comply with Licensor's current specifications. The price to be paid
by Licensee to Licensor for the Compounds shall be the Licensor's fully
burdened cost.
7.2 During the marketing period, Licensee will purchase, or shall cause its
Sub-licensee(s) to purchase, all their requirements of Compounds
exclusively from Licensor or from any other supplier designated by
Licensor, at Licensor fully burdened cost plus a reasonable mark up to be
agreed upon between the Parties.
7.3 Licensor undertakes to supply or have Licensee supplied with sufficient
quantities of Compounds, in order to allow Licensee to ensure the
manufacturing of the Products in the Territory. If Licensor is unable for
any reason to supply Licensee with any quantity of Compounds within the
timeframe provided in Article 7.1 above, then Licensee may, with Licensor's
prior written consent which shall not be unreasonably withheld, arrange the
manufacture of such Compounds itself or from another source as Licensee may
deem appropriate, only during the period of disruption, subject to quality
assurance approval by Licensor. If it occurs, Licensor shall supply the
selected manufacturer with any and all documentation necessary to fulfill
proper manufacture of such Compounds subject to secrecy and no-compete
commitment. Licensor shall promptly inform Licensee, by written notice, of
the end of such disruption. Licensee shall no longer be authorized to
manufacture or have manufactured the Compounds upon receipt of Licensor's
notice, provided, however Licensee shall be authorized to finish or have
finished the quantities currently in process and ordered during the time of
disruption.
7.4 Upon any breach of Licensee in such obligation of exclusion supply,
Licensor would be entitled to terminate this Agreement immediately without
any compensation and/or indemnity to Licensee.
8
<PAGE>
7.5 Licensee undertakes to promptly determine that any Compounds supplied
conforms to their specifications and to promptly examine shipments of the
Compounds for damage, defects or shortages. Any complaints with respect to
any shipment of Compounds, including any claim for defective goods,
shortage or any cause whatsoever, will have to be made by written notice
within sixty (60) days from the date of receipt by Licensee, specifying the
exact nature of the complaint, and providing the supplier with a sample of
the Compounds concerned and a report of a qualified insurance expert if
appropriate, failing which they shall lapse and Licensor shall have no
liability or responsibility whatsoever in respect thereof.
7.6 Licensor will replace or will have any goods proven to be defective
replaced, but Licensor will not be liable for any claims resulting from
loss of profit or any other claims or damages, whatever these may be,
provided that Licensor shall refund Licensee of its actual expenses
incurred for the clearance of the goods from the customs and delivery to
Licensee's wharehouse, if any.
7.7 In the event that any non-compliance with the specifications of any
Compound supplied by Licensor occurs, Licensee shall ask Licensor for
instructions for retesting, reshipment or destroying said Compound. Any
such retesting, reshipment and/or destruction shall be to the account and
at the expense of Licensor.
ARTICLE 8 - MANUFACTURE
- -----------------------
8.1 As soon as practicable, Licensee, or any Sub-Licensee, as the case may be,
shall manufacture or have manufactured the Products by any sub-contractor
it will designate after Licensor's prior written consent which shall not be
unreasonably withheld, for its exclusive marketing in the Territory,
provided, however, that Licensor shall be free to manufacture or have
manufactured the Products to be marketed outside the Territory. In case of
joint-marketing in the Territory, Licensor shall manufacture the Products
for itself, and may manufacture the Products for Licensee or any Sub-
licensee, upon Licensee's request.
8.2 (a). Licensee hereby represents and warrants that the Products will be
manufactured complying with their specifications, in accordance with
existing production and control requirements for pharmaceutical products
and with current laws, rules and regulations applicable to drug substances
in the Territory, including but not limited to Good Manufacturing
Practices.
(b). Licensor hereby represents and warrants that, if it is requested to
manufacture the Products for Licensee, the Products will be manufactured
complying with Licensee's specifications which shall be disclosed by
Licensee to Licensor prior to such manufacture, in accordance with existing
production and control requirements for pharmaceutical products and with
current laws, rules and regulations applicable to drug substances in the
Territory, including but not limited to Good Manufacturing Practices.
8.3 Except if requested by Licensor, Licensee shall not take steps with the
regulatory authorities in the Territory in order to change, alternate or
modify the preparation and formulation of the Products without Licensor's
prior written approval.
9
<PAGE>
8.4 Licensee represents and warrants that any packaging material used, will be
in accordance with Licensor's requirements. Licensee shall be responsible
for the control of printed packaging. Any alteration of printed packaging
shall be approved by Licensor before the alteration is implemented. Each
packaging shall mention the wording "Under license from SANOFI", or such
other statement that Licensor may reasonably request, including without
limitation references to patent numbers, provided that such wording
otherwise complies with all applicable regulatory requirements for such
labeling.
8.5 (a) Licensee undertakes to inform Licensor and shall cause its Sub-
licensee(s) to inform Licensor, (i) of any publication or information
available in the Territory concerning the Products and/or the
Compounds, and/or competitive products and, (ii) of any remarks which
may have been made by government inspectors during their visits to any
facilities involved in the manufacture of the Products, and on any
appropriate actions taken in response hereto.
(b) Each party hereto shall immediately notify the other in writing as
soon as it becomes aware of any defect or condition that may render a
Compound or Product subject to a recall or product correction pursuant
to any country's law, rules and regulations. Additionally, the Parties
shall share all data on Compounds' or Products' complaints including
but not limited to, complaints or information regarding performance
and/or allegations or reports of any adverse effects on a patient from
use of the Products or Compounds, as soon as such data is available,
and in accordance with Adverse Events Protocol of the party for the
U.S.
ARTICLE 9 - REPRESENTATION AND WARRANTIES
- -----------------------------------------
9.1 Licensor hereby represents:
- that it has full rights and authority to enter into this Agreement,
- that as of the date of this Agreement, it is the owner of the
Intellectual Property Rights in the Territory and/or it has the right to
use and license such Intellectual Property Rights in the Territory;
- that it has not entered into any agreement with any third party in the
Territory which is in conflict with the rights granted to Licensee
pursuant to this Agreement;
- that it has no present knowledge that any of the Patents and the Know-How
and Technical Data rights are invalid, or that their exercise would
infringe the rights of third parties.
9.2 Licensee hereby represents and warrants:
- that it has the full right and authority to enter into this Agreement and
that it shall use the Intellectual Property Rights for the sole purpose
of this Agreement, in accordance with its terms and conditions.
10
<PAGE>
- that it shall develop, manufacture and market the Products in the
Territory, in accordance with the terms and conditions herein contained,
and any applicable law, rules and regulations in full force in the
Territory, including but not limited to the Good Laboratory Practices,
Good Clinical Practices and Good Manufacturing Practices.
ARTICLE 10 - LIABILITY
- ----------------------
10.1 Except to the extent caused by the use of any Compound in clinical trials
prior to the date hereof, Licensor shall assume no liability for toxic
effects or other injuries which may be suffered by Licensee's employees,
and or its Sub-licensee(s)'s employees, in connection with the handling or
storage of Compounds used in the Development Work and the manufacture of
the Products pursuant to this Agreement and subject to the terms and
conditions hereof.
10.2 Subject to the terms and conditions of this Agreement, Licensor shall
assume no liability for any damage occasioned by Compounds or Products to
Licensee's facilities and equipment, to this Sub-licensee(s)'s facilities
and equipment, or to goods or products belonging to third parties which
are stored in their warehouses.
10.3 Licensee shall take, or shall cause its Sub-licensee(s) to take, a civil
liability insurance covering all manufacturing operations performed under
this Agreement.
10.4 Licensee undertakes to indemnity and hold harmless Licensor against any
and all liability, loss, claims, cost, expenses or damages related to (i)
the development of the Products, or the Products (whether or not
defective) or any act or omission of Licensee, including but not limited
to any injury (whether to body, property or personal or business,
character or reputation) sustained by any person or to any person or to
property, and for any violation of municipal state, or federal laws or
regulations of the United States of America and/or Canada, or (ii) the
manufacture and marketing of the Products by Licensee or any of its
Sublicensee(s). If Licensor is sued in any court or tribunal for damages
by reasons of any of the acts described above, then Licensee shall defend
such action or cause it to be defended, at its own expense, and shall pay
and discharge any judgments as may be rendered. If Licensee fails or
neglects to so defend, then Licensor may defend the same and any expenses
including attorney fees, incurred or any judgment required to be paid,
shall be promptly reimbursed upon Licensor's demand. Licensee shall not be
required to indemnify Licensor for any liability, loss, cost, expense or
damage, incurred by Licensor to the extent it results from Licensor's own
acts, omissions or negligence. Should any Registrations be withdrawn for
any reason other than a default or decision on the part of Licensor, or if
Licensor decides to withdraw the Products from the market, even though the
Registrations are still valid, Licensee will have no right to present a
complaint to Licensor or to claim any damages from Licensor and/or its
Affiliates. This clause shall survive termination of this Agreement.
11
<PAGE>
10.5 Licensor undertakes to indemnify and hold harmless Licensee against any
and all liability, loss, claims, costs, expense or damages to which
Licensee may be or may become subject as a result of adverse effects of
the Products and/or the Compounds, which are not due to any acts,
omissions or negligence on the part of Licensee or of any of its Sub-
Licensee(s) in the development, manufacture, marketing or other usage or
storage or handling of the Compounds and/or the Products. If Licensee is
sued in any court or tribunal for damages by reasons of any of the acts
described above, then Licensor shall defend such action or cause it to be
defended at its own expense, and shall pay and discharge any judgments as
may be rendered, to the extent (i) Licensee gives Licensor notice of any
such law suit (including a copy thereof served upon Licensee) within
fifteen (15) days after such law suit was served upon Licensee, (ii)
Licensee and its employees fully cooperate with Licensor and its legal
representatives, and (iii) Licensee does not withhold its approval of the
settlement of any claim, liability or action by Licensor. If Licensor
fails or neglects to so defend, then Licensee may defend the same and any
expense including reasonable attorney fees, incurred or any judgment
required to be paid, shall be promptly reimbursed upon Licensee's demand.
10.6 Licensee and Licensor agree that any information related to side effects
of the Products which are known to them will promptly and fully be made
known to the other Party.
ARTICLE 11 - DEFENSE OF PATENTS AND KNOW-HOW AND TECHNICAL DATA
- ---------------------------------------------------------------
If Licensee becomes aware of any infringement of any Patent rights or other
Know-How and Technical Data, then Licensee shall notify Licensor of such
infringement and Licensor shall (i) undertake proceedings in its own name and at
its own expense to restrain or bring other action against such infringement and
shall notify Licensee of such proceedings, or (ii) authorize and agree to
cooperate with Licensee to permit Licensee to undertake proceedings, at
Licensee's expense, to restrain or bring other action against such infringement.
Each Party shall be entitled to be represented at such proceedings by counsel at
such Party's expense. Any recovery by Licensee or Licensor hereunder shall first
be used to reimburse the expenses incurred by the Party undertaking such
proceedings and any remaining amount shall be treated as a component of annual
Net Sales of Products, unless the Parties shall otherwise agree. Neither party
shall enter into a settlement of any such proceedings in any that would
compromise the other party's rights under this Agreement, without the prior
written consent of the other party.
ARTICLE 12 - NON COMPETE COVENANT
- ---------------------------------
In the frame of good cooperation between the Parties under this Agreement, and
for their mutual interest, Licensee undertakes not to produce and/or market,
during the term of this Agreement and two (2) years thereafter, directly or
indirectly, any pharmaceutical speciality with the same Compound as the Products
and/or in the field of picornavirus indication, and not to produce for the
account of third parties, either directly or indirectly, any substance identical
to the Compounds.
12
<PAGE>
ARTICLE 13 - DURATION
- ---------------------
13.1 This Agreement, unless previously terminated pursuant to the terms and
conditions herein contained and/or unless otherwise agreed upon between
the Parties, shall be effective as of the date first above written, and
shall remain in force until either (i) the expiration of the last Patent
covering any of the Compounds and/or the Products in any country of the
Territory, or (ii) ten (10) years as from the first launch of the Products
in any country of the Territory by Licensee or its Sub-licensee(s),
whichever is later.
13.2 This Agreement shall thereafter be automatically renewed for successive
five year periods unless either party has notified its decision not to
renew it by written notice sent to the other at least six months before
the end of the first period referred to above.
ARTICLE 14 - TERMINATION OR DISCONTINUATION
- -------------------------------------------
14.1 In the event that any of the Parties commits any material breach or
violation of its obligations hereunder and does not remedy said violation
or breach within thirty (30) days of the non breaching Party's written
notice, the non breaching Party shall have the right to early terminate
this Agreement immediately and without prejudice to claim for damages, by
giving notice to such breaching party, provided that the notice of
termination is given within three (3) months after the default and prior
to correction of the default.
14.2 This Agreement may be terminated upon the written request of either party,
but only after prior consultation with the other party, upon the
reasonable determination by the terminating party that:
(a) prior to the first commercial marketing of the Products, further
Development Work of the Compounds is not possible or practicable due
to material and adverse scientific, health, safety or regulatory
issues; or
(b) subsequent to the first commercial marketing, one of the Products is
permanently and completely withdrawn from the market for serious
adverse health or other safety reasons.
14.3 This Agreement may be discontinued or terminated by Licensor:
(a) giving Licensee a sixty (60) day prior written notice in the event
that there is a change in control of Licensee, which would materially
and adversely affect the development, manufacturing and marketing of
the Products in the Territory, control being understood as either the
majority of the voting stock of Licensee, or the right through
ownership or contract to appoint at least the majority of the members
of the board of directors of Licensee,
13
<PAGE>
(b) without prior written notice to Licensee in the event that Licensee is
subject to, or applies for, any kind of bankruptcy proceedings,
including without limitation the appointment of a receiver or of a
liquidator, the distribution and/or liquidation of part or all of
Licensee's assets or the application for any kind of protection
against its creditors.
14.4 In the event that at any time during the validity of this Agreement, one
or the other, or both Parties decide to discontinue the Agreement, or upon
termination or expiration of the said Agreement for whatever reason,
Licensor will have free access and use of the dossiers used by Licensee
for the submission of the Registrations in the Territory, and Licensee
undertakes, as from that moment:
(a) to immediately cease the use of the Trademarks, the Patents and the
Know-How and Technical Data granted under this Agreement and
consequently to cease and/or have ceased any development,
manufacturing and marketing of the Products in the Territory,
(b) in accordance with applicable law, to immediately assign or deliver or
turn over to Licensor or any person or company designated by Licensor,
without any charge, all Registrations or other rights pending or
already obtained from the authorities in the Territory, governmental
or otherwise, concerning the right to develop, manufacture and market
the Products in the Territory (including of all those rights which are
already directly or indirectly in the possession of Licensee or those
which Licensee has the right to possess) and to assist Licensor in
making all relevent obligations to concerned authorities;
(c) to return to Licensor any and all confidential documents, information,
details of methods, protocols, photo negatives, scientific, technical
and commercial reports, which have been disclosed to, or made by
Licensee under this Agreement;
(d) to remain bound by the obligations of secrecy set out in this
Agreement and not to make any direct or indirect commercial or
industrial use of the Compounds and/or of the Products and/or of the
Trademarks, the Patents and/or the Know-How and Technical Data.
14.5 Licensee and its Sub-licensees shall be permitted to sell all Products
which they have on hand on the date of such expiration or termination,
provide that Licensee shall pay the royalty that would have
otherwise been due thereon under the terms of the Agreement.
Article 15 - Confidentiality
- ----------------------------
15.1 The text of the present Agreement will not be disclosed, either in its
entirety or in part, by either of the Parties, to a third party or to
the public, other than to Affiliates, parent companies, branch offices or
prospective investors subject to secrecy commitment of said prospective
investors, of Licensee or of Licensor, without the prior written consent
of the other Party, unless such a disclosure is required by applicable
law, in which case the Party from whom the disclosure is legally required
will immediately advise the other Party hereto accordingly in writing.
14
<PAGE>
15.2 Except as provided above, during the term of this Agreement and for a
period of five (5) years thereafter, Licensor and Licensee shall not
reveal or disclose to any third party any confidential information
received from the other party without first obtaining the written consent
of the disclosing party, except as may be required for the purposes of
investigating, developing, manufacturing or marketing the Compounds and/or
the Products for securing essential or desirable authorizations,
privileges or rights from governmental agencies, or as may be necessary to
file or prosecute patent applications concerning the Compounds and/or the
Products or to carry out any litigation concerning the Compounds and/or
the Products.
15.3 The foregoing provisions shall not apply to any information which:
(a) is public knowledge or becomes public knowledge through no fault of
Licensee, or
(b) has been properly provided to Licensee, without restriction, by an
independent third party, or
(c) was already properly in possession of Licensee at the time of receipt
from Licensor, or
(d) has to be disclosed to any governmental agency, authority or officer
in the Territory in connection with the development, manufacture, use
and marketing of the Products.
(e) is required by applicable law.
15.4 Licensee covenants and agrees in addition to see that this obligation is
observed by any and all persons involved in the development, manufacture
and marketing of the Products.
ARTICLE 16- FORCE MAJEURE
- -------------------------
16.1 Notwithstanding any other provision hereof, Licensee or Licensor shall be
excused from delays in the performance of, or failure to perform, any of
their obligations under this Agreement, due to and for the duration of an
event beyond their reasonable control and not due to a fault on their
part, including, without limitation: strikes, lockouts, shortage of
supplies, Act of Government, Act of God ,any other event of the same
gender, and any other cause beyond their reasonable control of the
Parties, provided that the Party so excused shall recommence performance
of this Agreement with the utmost dispatch as soon as possible.
16.2 Should any such cause for failure or delay last for more than sixty (60)
consecutive days, the other Party may, after the expiration of such period
and if such failure or delay still exists, give notice in writing as
provided herein to the Party so excused either accepting continued
suspension of such Party's performance for a period reasonable in the
circumstances, or terminating this Agreement.
15
<PAGE>
16.3 The Party wishing to be so excused from its obligations, shall notify the
other Party without delay, the circumstances and effects of such an event
and consult therewith on suitable interim arrangements which may included
mutually agreeable amendments to this Agreement.
ARTICLE 17 - MISCELLANEOUS
- --------------------------
17.1 This Agreement shall inure to the benefit of and shall be binding upon,
the Parties and their respective successors. Licensee may not assign its
rights or obligations under this Agreement without the prior written
consent of Licensor which shall not be unreasonably withheld, except to
its Affiliates. Licensor has the right to assign its rights and/or
obligations hereunder.
17.2 All times and delays set forth or referred to herein, including those
referred to in the Development Plan, are of the essence of this Agreement.
17.3 The captions of the provisions of this Agreement are for convenience of
reference only and do not form a part of or govern construction of any
part hereof.
17.4 The status of the Parties under this Agreement shall be that of
independent contractors and neither Party shall be deemed or construed to
be an employee, agent, partner or legal representative of the other Party
for any purpose whatsoever. Neither Party shall have the right or
authority to assume or otherwise create any obligation or responsibility,
express or implied, on behalf or in the name of the other Party or to bind
the other Party in any manner or thing whatsoever.
17.5 This Agreement embodies the entire understanding of the Parties with
respect to such subject matter, and supersedes all previous agreement
between them. No amendment or modification of this Agreement shall be
valid and binding upon the Parties unless in writing and signed on behalf
of each Party by its duly authorized officers.
17.6 Should either Party fail to enforce any provision of this Agreement, or
fail to exercise, or waive, any right in respect thereto, such failure or
waiver shall not be construed as constituting a waiver or constituting
waiver of its rights to enforce such provision or right or any other
provision or right.
17.7 In the event any provision of this Agreement is invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby. If any of
the terms or provisions of this Agreement are in conflict with any
applicable statute or rule of law, then such terms or provisions shall be
deemed inoperative to the extent that they may conflict therewith and
shall be deemed to be modified to conform with such statute or rule of
law. In the event that the terms and conditions of this Agreement are
materially altered as a result of this Article 17.7, the Parties will
renegotiate in good faith the terms and conditions of this Agreement to
resolve any inequities.
16
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17.8 Any notice, payment or report required or permitted under this Agreement
shall be delivered by hand or registered or certified mail to the
following addresses:
(a) if to Licensor:
--------------
Sanofi
32-34, rue Marbeuf
75008 Paris - France
Attention: Office of General Counsel
With a copy to:
Sanofi - Accounting Department,
for notice relating to payments and
sales statements only.
(b) if to Licensee:
--------------
Viropharma Inc.
76, Great Valley Parkway
Malvern, PA 19355
Attention: M.A. McKinlay
or to such other person or address as shall hereafter furnished by written
notice to the other Party.
ARTICLE 18 - ARBITRATION/GOVERNING LAW
- --------------------------------------
18.1 This Agreement shall be construed in accordance with and governed by the
laws of the State of New York, without regard to the choice of laws
principles that might otherwise be applied in such jurisdiction; provided,
however that Article 18.2 below shall be governed by the Federal
Arbitration Act, Title 9, United States Code, and the Convention on the
Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958.
18.2 All disputes, questions, controversies, claims or differences arising out
of or in relation to or in connection with this Agreement and which cannot
be settled amicably, or for breach thereof, shall be finally settled under
the Rules of Arbitration of the International Chamber of Commerce by three
arbitrators appointed in accordance with the said Rules, with proceedings
conducted in the English language in Paris. The president of the arbitral
tribunal will not be a citizen of the United States of America or the
Republic of France. The arbitral Tribunal shall apply to the merits of the
dispute the provisions of this Agreement and in case of silence of such
provisions, the Laws of the State of New York.
17
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IN WITNESS WHEREOF, the Parties hereto haved caused this Agreement to be
executed in duplicate by their duly authorized representatives on the date first
written above.
For SANOFI For VIROPHARMA, INC.
- ---------- --------------------
/s/ Jean-Francois Dehecq /s/ Claude H. Nash
Name Jean-Francois Dehecq Name Claude H. Nash
---------------
President & CEO
18
<PAGE>
SCHEDULE 1
----------
---------------------------
LIST OF PATENTS OWNED
---------------------
BY SANOFI
---------
---------------------------
- --------------------------------------------------------------------------------
COUNTRY PATENT FILING DATE GRANT DATE STATUS
(APPLICATION)
- --------------------------------------------------------------------------------
U.S. 5.464.848 10/01/93 11/07/95 in force
- --------------------------------------------------------------------------------
U.S. 5.453.433 05/13/94 09/26/95 in force
- --------------------------------------------------------------------------------
Canada 2.094.012 04/14/93 pending
- --------------------------------------------------------------------------------
Canada PCT/US95/05790 05/10/95 pending
- --------------------------------------------------------------------------------
19
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SCHEDULE 2
----------
--------------------------
DEVELOPMENT PLAN
----------------
--------------------------
[REDACTED]
20
<PAGE>
APPENDIX A
----------
DEVELOPMENT COSTS
[REDACTED]
22
<PAGE>
EXHIBIT 10.7
COLLABORATIVE RESEARCH AGREEMENT *
THIS COLLABORATIVE RESEARCH AGREEMENT is made as of the 23rd day of
July 1996, between BOEHRINGER INGELHEIM PHARMACEUTICALS, INC., a Delaware
corporation having offices at 900 Ridgebury Road, Ridgefield, Connecticut 06877
( "BI") and VIROPHARMA, INC., a Delaware corporation having offices at 76 Great
Valley Parkway, Malvern, Pennsylvania 19355 ("VP").
Background
----------
Boehringer Ingelheim Pharmaceuticals Inc. possesses, directly and
indirectly, through its affiliates, know-how, technology and compounds useful in
pharmaceutical drug discovery, development and marketing. VP possesses know-
how, technology and compounds useful in anti-viral drug discovery and
development.
BI desires to have an exclusive collaborative research relationship
with VP to discover, optimize and develop compounds that inhibit hepatitis C
virus helicase activity, and the option to negotiate for future hepatitis C
virus targets developed by VP, and VP desires to have a collaborative research
relationship with BI to discover, optimize and develop compounds that
selectively inhibit hepatitis C virus helicase activity.
It is the parties' intention that BI or VP, as appropriate, receive
exclusive rights to commercialize products deriving from know-how and
technology. VP desires and is free to grant, and BI desires and is free to
acquire, certain rights and a license with respect to such know-how, technology
and compounds of VP. If BI decides and is free to abandon the project as
described herein, BI is willing to grant, and VP desires to acquire, certain
rights and a license with respect to such know-how and compounds possessed by
BI.
NOW, THEREFORE, in consideration of the covenants and obligations
expressed herein, and intending to be legally bound, the parties agree as
follows:
Terms
-----
1. DEFINITIONS
-----------
1.1 "AFFILIATES" shall mean any corporation, firm, partnership or
other entity, which directly or indirectly owns, is owned by or is under common
ownership with a party to the extent of at least fifty percent (50%) of the
equity (or such lesser percentage which is the maximum allowed to be owned by a
foreign corporation in a particular jurisdiction) having, the power to vote on
or direct the affairs of the entity and any person, firm, partnership,
corporation or other entity actually controlled by, controlling or under common
control with a party.
1.2 "BANKRUPTCY EVENT" shall mean a party to this Agreement becomes
insolvent, or voluntary or involuntary proceedings by or against such party are
instituted in bankruptcy or under any insolvency law, or a receiver or custodian
is appointed for such party, or proceedings are instituted by or against such
party for corporate reorganization or the dissolution of such party, which
proceedings, if involuntary, shall not have been dismissed within sixty (60)
days after the date of filing, or such party makes an assignment for the benefit
of creditors, or substantially all of the assets of such party are seized or
attached and not released within sixty (60) days thereafter.
Confidential
* Portions of this exhibit were omitted and filed separately with the Secretary
of the Commission pursuant to an application for confidential treatment filed
with the Commission pursuant to Rule 406 under the Securities Act of 1933.
Such portions are marked by "X" or the word "Redacted".
1
<PAGE>
1.3 "BI KNOW-HOW" shall mean all present and future technical
information and KNOW-HOW owned by or under the control of BI which relates to
any ACTIVE COMPOUND and/or DISCOVERY and shall include, without limitation, all
biological, chemical, pharmacological, toxicological, clinical, assay, control
and manufacturing data and any other information relating to any ACTIVE COMPOUND
or DISCOVERY, or useful for the DEVELOPMENT and commercialization of any ACTIVE
COMPOUND.
1.4 "COMPOUND(S)" shall mean any chemical entities existing in
COMPOUND LIBRARIES of either party or created or identified pursuant to the
DISCOVERY. COMPOUNDS shall be treated as follows during the course of DISCOVERY:
(a) COMPOUNDS from VP and BI COMPOUND LIBRARIES (as defined in Section
1.4.2) will be assessed in the PRIMARY SCREENING (as defined in
Section 1.12).
(b) Those COMPOUNDS found to inhibit hepatitis C virus helicase
activity in the PRIMARY SCREENING shall be referred to as ACTIVE
COMPOUNDS ( as defined in Section 1.4.1).
(c) ACTIVE COMPOUNDS will be assessed for potency and selectivity in
SECONDARY ASSAYS (as defined in Section 1.15).
(d) Some ACTIVE COMPOUNDS will be modified chemically to improve their
potency and selectivity and will be referred to as OPTIMIZED COMPOUNDS
(as defined in Section 1.4.4).
(e) ACTIVE COMPOUNDS with properties deemed acceptable to the STEERING
COMMITTEE (as defined in Section 1.16), whether or not the ACTIVE
COMPOUNDS have been OPTIMIZED, may be presented to the IRDC (as
defined in 1.9) for consideration to be promoted to the status of
DEVELOPMENT CANDIDATE (as defined in Section 1.4.3). Any ACTIVE
COMPOUND selected by the IRDC for promotion shall be referred to as a
DEVELOPMENT CANDIDATE.
(f) When a DEVELOPMENT CANDIDATE is chosen by the IRDC, it will be
designated an "A" COMPOUND (as defined in Section 1.4.3.1), a "B"
COMPOUND (as defined in Section 1.4.3.2) or a "C" COMPOUND (as defined
in Section 1.4.3.3) for the purpose of determining milestone and
royalty payments due on NET SALES of PRODUCT (as defined in Section
1.13) deriving from the DEVELOPMENT CANDIDATE.
1.4.1 "ACTIVE COMPOUND(S)" shall mean any COMPOUND(S) discovered
pursuant to the DISCOVERY which inhibits hepatitis C virus helicase activity.
1.4.2 "COMPOUND LIBRARIES" shall mean a collection of chemical
entities existing in repositories at BI or at VP, or AFFILIATES which are
authorized by a party to be used hereunder.
1.4.3 "DEVELOPMENT CANDIDATE" shall mean any ACTIVE COMPOUND or
OPTIMIZED COMPOUND selected for promotion to DEVELOPMENT status by the IRDC.
Confidential 2
<PAGE>
1.4.3.1 "A" COMPOUND shall mean a DEVELOPMENT CANDIDATE
arising from BI compound libraries that existed in those libraries on the
EFFECTIVE DATE of this Agreement not having required COMPOUND OPTIMIZATION from
the form in which it existed prior to the EFFECTIVE DATE to become a DEVELOPMENT
CANDIDATE.
1.4.3.2 "B" COMPOUND shall mean a DEVELOPMENT CANDIDATE
arising from compound libraries of either party and having undergone COMPOUND
OPTIMIZATION from the form in which it existed in the library to become a
DEVELOPMENT CANDIDATE.
1.4.3.3 "C "COMPOUND shall mean a DEVELOPMENT CANDIDATE
arising from VP COMPOUND LIBRARIES that existed in those LIBRARIES on the
EFFECTIVE DATE of this Agreement and not having required COMPOUND OPTIMIZATION
from the form in which it existed prior to the EFFECTIVE DATE to become a
DEVELOPMENT CANDIDATE.
1.4.4 "COMPOUND OPTIMIZATION" shall mean chemical modification of
ACTIVE COMPOUNDS to increase the potency and selectivity or otherwise make
ACTIVE COMPOUNDS more desirable for use in the FIELD. A COMPOUND which has
undergone COMPOUND OPTIMIZATION shall be referred to as an OPTIMIZED COMPOUND.
1.5 "DEVELOPMENT" shall mean development of manufacturing process,
preclinical development and clinical trials required to commercialize a
DEVELOPMENT CANDIDATE in the TERRITORY in the FIELD.
1.6 "DISCOVERY" shall mean the performance of assays to determine the
potency and selectivity of ACTIVE COMPOUNDS in the FIELD. DISCOVERY shall
include PRIMARY SCREENING, SECONDARY ASSAYS, and COMPOUND OPTIMIZATION in the
FIELD.
1.7 "EFFECTIVE DATE" shall mean the date as of which this Agreement is
effective and shall be the date first written above.
1.8 "FIELD" shall mean the treatment, prophylaxis or palliation of hepatitis
C virus infection by administration of an ACTIVE or OPTIMIZED COMPOUND. The
FIELD shall not include treatment, prophylaxis or palliation of hepatitis C
virus infection by administration of an inhibitor optimized for hepatitis C
virus protease activity.
1.9 "IRDC" shall mean BI's senior management committee charged with the
responsibility of evaluating ACTIVE COMPOUNDS, making recommendations to the
STEERING COMMITTEE regarding requirements for COMPOUND OPTIMIZATION, and
selecting DEVELOPMENT CANDIDATES consistent with criteria used for other
DEVELOPMENT CANDIDATES chosen by BI in the FIELD.
1.10 "NET SALES" shall mean the total of the gross receipts from sales of
PRODUCTS by BI or VP and their respective AFFILIATES and permitted sublicensees
less a deduction of [xxx]to cover the items listed below or the deductions
actually taken/made by BI or VP and their respective AFFILIATES and permitted
sublicensees on such sales for all: (i) transportation charges; (ii) sales and
excise taxes and duties, together with any other governmental charges or taxes
imposed upon the production, importation, use or sale of such PRODUCTS; (iii)
trade, quantity, and cash discounts; (iv) allowances or credits on account of
returned or rejected PRODUCTS; and (v) charge back payments and/or rebates to
managed health care organizations or federal, state and local governments, their
agencies, purchasers and reimbursers including reimbursement to social security
organizations in reasonable amounts consistent with BI's or VP's
Confidential 3
<PAGE>
historical practice and industry custom. Sales or transfers between or among a
party to this Agreement and its AFFILIATES or sublicensees shall be excluded
from the computation of NET SALES except where such AFFILIATES or sublicensees
are end users, but NET SALES shall include the subsequent final sales to third
parties by such AFFILIATES and sublicensees. If BI sells Product to recognized
agents, and such agents are not AFFILIATEs, but are used as sole distributors of
PRODUCT in countries where BI is not represented by its own AFFILIATES, NET
SALES shall include the gross receipts from sales of PRODUCT by BI to such
agents without deduction.
1.11 "PATENTS" shall mean all PATENTS and PATENT applications which are
or become owned by either party, or to which either party otherwise has, now or
in the future, the right to grant licenses, which generically or specifically
claim any ACTIVE COMPOUND, a process for manufacturing any ACTIVE COMPOUND, an
intermediate used in such process or a use of any ACTIVE COMPOUND. Included
within the definition of PATENTS are all continuations, continuations-in-part,
divisions, patents of addition, reissues, renewals or extensions thereof. Also
included within the definition of PATENTS are any PATENTS or PATENT applications
which generally or specifically claim any improvements on any ACTIVE COMPOUND,
or intermediates or manufacturing processes required or useful for production of
any ACTIVE COMPOUND, or for conducting DISCOVERY or DEVELOPMENT of ACTIVE
COMPOUNDS, which are owned by either party or to which either party otherwise
has the right to grant licenses, now or in the future, during the term of this
Agreement.
1.12 "PRIMARY SCREENING" shall mean assessment of BI and VP COMPOUNDS in
the high-throughput assay for inhibition of hepatitis C virus helicase activity.
1.13 "PRODUCT" shall mean any pharmaceutical compositions for human
therapeutic, prophylactic or palliative use in the FIELD derived or based upon a
DEVELOPMENT CANDIDATE and/or claimed by a PATENT.
1.14 "ROYALTY PERIOD" shall mean, with respect to a PRODUCT, the period
beginning on the date on which BI or its AFFILIATE, if it is obligated to pay
royalties, or VP or its AFFILIATE if it is obligated to pay royalties, first
sells or otherwise commercially exploits such PRODUCT and ending, on a country
by country basis consistent with the laws of the jurisdiction, on the date the
last issued PATENT claiming PRODUCT as a composition of matter or the use for
which PRODUCT is being sold, if any, expires. If no PATENT is issued in any
country in which PRODUCT is sold or otherwise exploited, the ROYALTY PERIOD for
such country shall extend for 12 years from the first sales or exploitation of
PRODUCT.
1.15 "SECONDARY ASSAYS" shall mean the assays developed by VP to determine
the potency and selectivity of ACTIVE COMPOUNDS identified as active in PRIMARY
SCREENING assays. The assays constituting the "SECONDARY ASSAYS" shall be those
listed in Appendix II.
1.16 "STEERING COMMITTEE" shall mean a committee containing senior
research members from both parties which the parties shall form and convene,
promptly after the EFFECTIVE DATE, to facilitate the DISCOVERY. The
responsibilities of the STEERING COMMITTEE are set forth in Section 3.1.
1.17 "TERM" or "TERM OF AGREEMENT" shall mean the period commencing on the
EFFECTIVE DATE and ending on the second year anniversary thereof, unless earlier
terminated hereunder.
1.18 "TERRITORY" shall mean all the countries and territories in the
world .
4
<PAGE>
1.19 "THIRD PARTY(TIES)" shall mean any party other than a party to this
Agreement or an AFFILIATE of VP or BI.
1.20 "VP KNOW-HOW" shall mean all present and future technical information
and know-how owned by or under the control of VP which relates to any ACTIVE
COMPOUND and/or DISCOVERY and shall include, without limitation all biological
and chemical data and any other information relating to any COMPOUND or
DISCOVERY, or useful for the DEVELOPMENT and commercialization of any ACTIVE
COMPOUND.
2. CONSIDERATION.
--------------
2.1 Payment on Execution. Within 30 days of EFFECTIVE DATE, BI shall make
---------------------
the following payment to VP:
2.1.1 In partial consideration of access to VP's hepatitis C virus
helicase technology and inhibitor compounds, BI shall pay VP a nonrefundable and
noncreditable payment of $1,000,000.
2.2 Loan. BI shall grant VP a loan of [xxxxxxxxx] as an advance of the
-----
milestone payment required by Section 2.3.3, which amount plus interest will be
credited or repaid in accordance with Sections 2.2.3 and 2.3.3.
2.2.1 Loan Activation. VP shall be able to activate the loan
----------------
commencing on January 1, 1997 and ending on December 31, 1997. VP shall give BI
two (2) weeks written notice prior to activation of the loan.
2.2.2 Security of the Loan. The loan shall be secured by [xxxxxx xx
---------------------
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx]
2.2.3 Interest on the Loan. The interest rate on the loan shall be
---------------------
established at [xxxxxxxxxxxxxxxxx] on the date of activation of the loan. The
interest shall be fixed at such rate and accrued on the outstanding balance
until the balance of the loan is credited pursuant to Section 2.2.4 or repaid
2.2.4 Payment of Loan. VP may repay the outstanding balance of the
----------------
loan plus all accrued interest at any time without penalty but in no event later
than the second anniversary of the effective date of termination of this
Agreement. If VP achieves the milestone set forth in Section 2.3.3, then the
[xxxxxxxxxx] payment payable under Section 2.3.3 shall be credited against the
outstanding balance of the loan and any balance shall be paid to VP. Accrued
interest will be paid to BI in cash or credited at the time the loan is repaid.
2.3 Milestone Payments. BI will make milestone payments to VP as follows:
-------------------
2.3.1 In respect of the transfer to BI by VP during the first year
of the term of this Agreement of the items listed in Appendix I, BI shall pay to
VP a nonrefundable and noncreditable payment of [xxxxxxxx],payable [xxxxxxx]
the later of (i) the completion of transfer of the PRIMARY SCREENING assay or
(ii) the six month anniversary of the EFFECTIVE DATE and [xxxxxxxx] on the later
of (i) completion of transfer of items listed in Part B of Appendix I or (ii)
the first anniversary of the EFFECTIVE DATE.
5
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2.3.2 In respect of the transfer to BI during the second year of the
term of this Agreement by VP of the Items listed in Part C of Appendix I, BI
shall pay to VP a nonrefundable and noncreditable payment of [xxxxxxxxxx]
payable [xxxxxxx] on the later of (i) the transfer of Items 1 and 2 of Appendix
I, Part C or (ii) the eighteen month anniversary of the EFFECTIVE DATE and
[xxxxxxxx] on the later of (i) completion of transfer of Items listed in Part C
of Appendix I or (ii) the second year anniversary of the EFFECTIVE DATE.
2.3.3 Upon selection by the IRDC of the first DEVELOPMENT CANDIDATE,
BI shall make a one-time payment to VP of [xxxxxxxxx] by (i) first crediting
such amount against the outstanding balance of the loan pursuant to Section 2.2
and (ii) paying the balance to VP.
2.3.4 If the first DEVELOPMENT CANDIDATE is a B COMPOUND which is
first synthesized during the period ("First Period") commencing on the EFFECTIVE
DATE and ending one year thereafter, BI will pay to VP nonrefundable milestone
payments aggregating [xxxxxxxxxx] to be [xxxx] creditable against royalties
payable under Section 2.4 at the rate of
[xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx] of earned royalties in any given
year, payable as follows:
2.3.4.1 [xxxxxxx] upon the filing of an Investigational New
Drug application ("IND") on such DEVELOPMENT CANDIDATE or equivalent with the
United States Food and Drug Administration ("FDA") or its equivalent in another
jurisdiction.
2.3.4.2 [xxxxxxxxxx] upon the completion of Phase II or
equivalent studies and BI making the decision to continue DEVELOPMENT; provided
that if BI has not given notice to VP reasonably promptly after such completion
of its decision not to continue DEVELOPMENT, BI shall be deemed to have decided
to continue DEVELOPMENT.
2.3.4.3 [xxxxxxxxx] upon the first submission of an
application for regulatory approval in any jurisdiction.
2.3.4.4 [xxxxxxxxxx] upon first regulatory approval in any
jurisdiction.
2.3.5 If such DEVELOPMENT CANDIDATE is a B COMPOUND which is first
synthesized during the period commencing on the date ending the First Period
described in Section 2.3.4 and ending on the first year anniversary thereof, BI
will pay to VP nonrefundable milestone payments aggregating [xxxxxxxxx], to be
[xxx] creditable against royalties payable under Section 2.4 credited at the
rate of [xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx] of earned royalties,
payable as follows:
2.3.5.1 [xxxxxxx] upon the filing of an Investigational New
Drug application ("IND") on such DEVELOPMENT CANDIDATE or equivalent with the
United States Food and Drug Administration ("FDA") or its equivalent in another
jurisdiction.
2.3.5.2 [xxxxxxxxxx]upon the completion of Phase II or
equivalent studies and BI making the decision to continue DEVELOPMENT; provided
that if BI has not given notice to VP reasonably promptly after such completion
of its decision not to continue DEVELOPMENT, BI shall be deemed to have decided
to continue DEVELOPMENT.
2.3.5.3 [xxxxxxxxxx] upon the first submission of an
application for regulatory approval in any jurisdiction.
2.3.5.4 [xxxxxxxxx]upon first regulatory approval in any
jurisdiction.
6
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2.3.6 If such DEVELOPMENT CANDIDATE is a B COMPOUND and is first
synthesized during the period commencing 1 year after the date ending the First
Period described in Section 2.3.4 and ending on the first year anniversary
thereof, BI will pay to VP nonrefundable milestone payments aggregating
[XXXXXXXXX], to be [XXXX] creditable against royalties payable under Section 2.4
at the rate of [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX] of earned royalties
in any given year, payable as follows:
2.3.6.1 [XXXXXXX] upon the filing of an Investigational New
Drug application ("IND") on such DEVELOPMENT CANDIDATE or equivalent with the
United States Food and Drug Administration ("FDA") or its equivalent in another
jurisdiction.
2.3.6.2 [xxxxxxxxxxxxx] upon the completion of Phase II or
equivalent studies and BI making the decision to continue DEVELOPMENT; provided
that if BI has not given notice to VP reasonably promptly after such completion
of its decision not to continue DEVELOPMENT, BI shall be deemed to have decided
to continue DEVELOPMENT.
2.3.6.3 [xxxxxxxxx] upon the first submission of an
application for regulatory approval in any jurisdiction.
2.3.6.4 [xxxxxxxxx] upon first regulatory approval in any
jurisdiction.
2.3.7 If BI, at any time during the 5 year period following the
period of Section 2.3.6, first synthesizes a DEVELOPMENT CANDIDATE which is a B
COMPOUND discovered using assays developed by VP, BI will pay nonrefundable
milestone payments aggregating [xxxxxxxxx], to be [XXXX] creditable against
royalties payable under Section 2.4 at the rate of [XXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXX] of earned royalties in any given year, payable as follows:
2.3.7.1 [XXXXXXXX] upon the filing of an Investigational New
Drug application ("IND") on such DEVELOPMENT CANDIDATE or equivalent with the
United States Food and Drug Administration ("FDA") or its equivalent in another
jurisdiction.
2.3.7.2 [XXXXXXXXXX] upon the completion of Phase II or
equivalent studies and BI making the decision to continue DEVELOPMENT; provided
that if BI has not given notice to VP reasonably promptly after such completion
of its decision not to continue DEVELOPMENT, BI shall be deemed to have decided
to continue DEVELOPMENT.
2.3.7.3 [XXXXXXXXX] upon the first submission of an
application for regulatory approval in any jurisdiction.
2.3.7.4 [XXXXXXXXXX] upon first regulatory approval.
2.3.8 If BI, at any time during the 5 year period following the
period of Section 2.3.7, first synthesizes a DEVELOPMENT CANDIDATE which is a B
COMPOUND discovered using assays developed by VP, BI will pay nonrefundable
milestone payments aggregating [XXXXXXXXX], to be [XXX] creditable against
royalties payable under Section 2.4 at the rate of [XXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXX] of earned royalties in any given year, payable as follows:
2.3.8.1 [XXXXXXX] upon the filing of an Investigational New
Drug application ("IND") on such DEVELOPMENT CANDIDATE or equivalent with the
United States Food and Drug Administration ("FDA") or its equivalent in another
jurisdiction.
Confidential 7
<PAGE>
2.3.8.2 [XXXXXXX] upon the completion of Phase II or
equivalent studies and BI making the decision to continue development; provided
that if BI has not given notice to VP reasonably promptly after such completion
of its decision not to continue DEVELOPMENT, BI shall be deemed to have decided
to continue DEVELOPMENT.
2.3.8.3 [XXXXXXX] upon the first submission of an application
for regulatory approval in any jurisdiction.
2.3.8.4 [XXXXXXXX] upon first regulatory approval.
2.3.9 If the IRDC, at any time during the TERM OF AGREEMENT, first
chooses a DEVELOPMENT CANDIDATE which is a C COMPOUND, BI will pay to VP
nonrefundable milestone payments aggregating [XXXXXXXXXX], to be [XXXX]
creditable
against royalties payable under Section 2.4 at the rate of [XXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXX] of earned royalties in any given year, payable as
follows:
2.3.9.1 [XXXXXXX] upon the filing of an Investigational New
Drug application ("IND") on such DEVELOPMENT CANDIDATE or equivalent with the
United States Food and Drug Administration ("FDA") or its equivalent in another
jurisdiction.
2.3.9.2 [XXXXXXXXXX] upon the completion of Phase II or
equivalent studies and BI making the decision to continue development; provided
that if BI has not given notice to VP reasonably promptly after such completion
of its decision not to continue DEVELOPMENT, BI shall be deemed to have decided
to continue DEVELOPMENT.
2.3.9.3 [XXXXXXXXXX] upon the first submission of an
application for regulatory approval in any jurisdiction.
2.3.9.4 [XXXXXXXXXX] upon first regulatory approval in any
jurisdiction.
2.3.10 If the IRDC, at any time during the first 5 year period
commencing upon termination of this Agreement, first chooses a DEVELOPMENT
CANDIDATE which is a C COMPOUND, BI will pay to VP nonrefundable milestone
payments aggregating [XXXXXXXXXXX], to be [XXXX] creditable against royalties
payable under Section 2.4 at the rate of [XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXX] of earned royalties in any given year, payable as follows:
2.3.10.1 [XXXXXXXX] upon the filing of an Investigational New
Drug application ("IND") on such DEVELOPMENT CANDIDATE or equivalent with the
United States Food and Drug Administration ("FDA") or its equivalent in another
jurisdiction.
2.3.10.2 [XXXXXXXXXX] upon the completion of Phase II or
equivalent studies and BI making the decision to continue development; provided
that if BI has not given notice to VP reasonably promptly after such completion
of its decision not to continue DEVELOPMENT, BI shall be deemed to have decided
to continue DEVELOPMENT.
2.3.10.3 [XXXXXXXXXX] upon the first submission of an
application for regulatory approval in any jurisdiction.
2.3.10.4 [XXXXXXXXXX] upon first regulatory approval in any
jurisdiction.
Confidential 8
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2.3.11 If the IRDC, at any time during the 5 year period following
the five year period specified in 2.3.10, first chooses a DEVELOPMENT CANDIDATE
which is a C COMPOUND, BI will pay to VP nonrefundable milestone payments
aggregating [xxxxxxxx], to be [xx] creditable against royalties payable under
Section 2.4 at the rate of [xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx] of earned
royalties in any given year, payable as follows:
2.3.11.1 [xxxxxx] upon the filing of an Investigational New
Drug application ("IND") on such DEVELOPMENT CANDIDATE or equivalent with the
United States Food and Drug Administration ("FDA") or its equivalent in another
jurisdiction.
2.3.11.2 [xxxxxxxx] upon the completion of Phase II or
equivalent studies and BI making the decision to continue DEVELOPMENT; provided
that if BI has not given notice to VP reasonably promptly after such completion
of its decision not to continue DEVELOPMENT, BI shall be deemed to have decided
to continue DEVELOPMENT.
2.3.11.3 [xxxxxxxx] upon the first submission of an
application for regulatory approval in any jurisdiction.
2.3.11.4 [xxxxxxxx] upon first regulatory approval in any
jurisdiction.
2.3.12 No milestone payments shall be due for DEVELOPMENT CANDIDATES
which are A COMPOUNDS, except the payments set forth in Sections 2.3.1, 2.3.2
and 2.3.3 which shall be paid in the amounts indicated.
2.3.13 If a DEVELOPMENT CANDIDATE replaces another DEVELOPMENT
CANDIDATE before such DEVELOPMENT CANDIDATE reaches the market, the replacement
DEVELOPMENT CANDIDATE should, for the purpose of milestones, enter at the stage
of the next payable milestone according to the replacement DEVELOPMENT
CANDIDATE's status as an A, B or C COMPOUND, i.e. if the replacement DEVELOPMENT
CANDIDATE is a B COMPOUND, the milestones are paid according to the B COMPOUND
payment schedule. BI shall only be obligated to make only one set of milestone
payments and only for the first DEVELOPMENT CANDIDATE that reaches regulatory
approval.
2.4 Royalties to VP. During the ROYALTY PERIOD, BI shall pay royalties to
---------------
VP on NET SALES of PRODUCT in the TERRITORY in accordance with this Section 2.4.
2.4.1 With respect to PRODUCT derived from a DEVELOPMENT CANDIDATE
which is an A COMPOUND, BI will pay royalties at the rate of [x] of NET SALES.
2.4.2 With respect to PRODUCT derived from a DEVELOPMENT CANDIDATE
which is a B COMPOUND, BI will pay royalties at the following rates:
2.4.2.1 [x] of NET SALES if a milestone payment is payable
subject to Section 2.3.4.
2.4.2.2 [x] of NET SALES if a milestone payment is payable
subject to Section 2.3.5.
2.4.2.3 [x] of NET SALES if a milestone payment is payable
subject to Section 2.3.6, 2.3.7 or 2.3.8.
Confidential 9
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2.4.3 With respect to PRODUCT derived from a DEVELOPMENT CANDIDATE
which is a C COMPOUND, BI will pay royalties at the rate of [x] of NET SALES
subject to Section 2.3.9, 2.3.10 or 2.3.11.
2.5 Royalties to BI. During the ROYALTY PERIOD, VP will pay royalties to
BI on NET SALES of PRODUCT in the TERRITORY derived from DEVELOPMENT CANDIDATES
developed by VP under Section 6.5.
2.5.1 With respect to PRODUCT derived from DEVELOPMENT CANDIDATES
which are A COMPOUNDS, VP will pay to BI royalties on NET SALES of [x].
2.5.2 With respect to PRODUCT derived from DEVELOPMENT CANDIDATES
which are B COMPOUNDS, VP will pay to BI royalties on NET SALES of [x].
2.5.3 With respect to PRODUCT derived from DEVELOPMENT CANDIDATES
which are C COMPOUNDS, VP will pay to BI royalties on NET SALES of [x].
2.6 Adjustment of Royalties. In TERRITORIES in which there is no PATENT
protection for PRODUCT, royalties owed by the royalty paying party shall be
adjusted to accommodate reduced sales caused by sales of competing product in
such TERRITORIES during the ROYALTY PERIOD. For every [x] reduction in NET
SALES in such TERRITORIES, the royalty on such NET SALES shall likewise be
reduced by [x] of royalties due, not to exceed a total reduction of [x].
2.7 Sublicense Royalties. If either party sublicenses its rights or
license hereunder to a THIRD PARTY, the licensing party will pay to the other
party [x] of all cash and non-cash considerations in kind received from such
THIRD PARTY. Considerations shall not include cost reimbursement for services
rendered or reagents and technology supplied.
2.8 License from THIRD PARTY. In the event BI is required, either by the
final judgment of a court or other governmental authority, or in settlement of
an infringement dispute with a THIRD PARTY, to license any intellectual property
rights owned or controlled by a THIRD PARTY in order to practice VP's PATENTS or
KNOW-HOW rights granted to BI by VP, then BI shall be entitled to credit any
amounts payable to such THIRD PARTY as a result of such license, against any
earned royalties that may be due by BI to VP at the rate of (a) [xx] of the
amount payable by BI if the THIRD PARTY'S rights are the result of a contractual
relationship between VP and such THIRD PARTY, or (b) [x] of such amounts if the
THIRD PARTY'S rights are derived from any other source. In the event that VP is
required, either by the final judgment of a court or other governmental
authority, or in settlement of an infringement dispute with a THIRD PARTY, to
license any intellectual property rights owned or controlled by a THIRD PARTY in
order to practice BI's PATENTS or KNOW-HOW rights granted to VP by BI, then the
VP shall be entitled to credit any amounts payable to such THIRD PARTY as a
result of such license, against any earned royalties that may be due by VP to BI
at the rate of (a) [xx] of the amount payable by VP if the THIRD PARTY'S rights
are the result of a contractual relationship between BI and such THIRD PARTY, or
(b) [x] of such amounts if the THIRD PARTY'S rights are derived from any other
source.
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3. DISCOVERY. The parties will carry out DISCOVERY in accordance with this
----------
Section 3.
3.1 STEERING COMMITTEE.
-------------------
3.1.1 Role of Committee. DISCOVERY shall be
------------------
coordinated by the STEERING COMMITTEE which shall, in good faith, (i) determine
the overall strategy for the DISCOVERY, (ii) coordinate the parties' activities
hereunder (iii) approve plans for the DISCOVERY, (iv) inform the IRDC on a
regular basis of ACTIVE COMPOUNDS undergoing COMPOUND OPTIMIZATION and (v)
recommend to the IRDC for promotion to DEVELOPMENT CANDIDATE status ACTIVE
COMPOUNDS that have acceptable properties .
3.1.2 Conflict Resolution. In the event of a lack of agreement between
--------------------
the parties, members of the STEERING COMMITTEE will negotiate in good faith to
come to a mutually agreeable resolution that will be in the best interest of
expediting the hepatitis C virus helicase drug discovery effort. If mutual
agreement between the parties cannot be achieved within 30 days, each party will
choose another member of its senior management to take over the negotiations. If
senior management cannot resolve the conflict within 30 days, the matter may be
submitted by either party to arbitration in accordance with Section 18.
3.2 Responsible Scientists. The principal scientists who will be
-----------------------
responsible for carrying out of the respective responsibilities of each party
are, for BI: Drs. Paul Anderson and Michael Cordingley, and for VP: Drs. Marc
Collett and Guy Diana, or such other persons as the parties may designate.
Should any member be replaced on the STEERING COMMITTEE for any reason,
replacements shall have equivalent levels of expertise as those members being
replaced. All research information, VP KNOW-HOW and BI KNOW-HOW, disclosed
pursuant to this Agreement, and all other communications concerning the
DISCOVERY, shall be directed to the principal scientists to the extent
reasonably practical.
3.3 During the term of this Agreement, no party shall enter into any
agreement related to DISCOVERY in the FIELD with any THIRD PARTY without the
prior written consent of the other party.
3.4 Responsibilities. Subject to the terms and conditions of this
-----------------
Agreement, the parties will carry out their respective roles as they are defined
in the Research Plan, attached as Appendix III, which shall be revised on an
annual basis. Both parties shall use all reasonable efforts to complete
DISCOVERY. The primary responsibilities of each party in the conduct of the
DISCOVERY are substantially as set forth in Appendices I and III.
4. NEW HEPATITIS C VIRUS TARGETS.
------------------------------
4.1 [xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx]
4.2 [xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx]
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4.3 [xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx]
4.4 [xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx]
5. CONDUCT OF THE DISCOVERY:
-------------------------
5.1 VP shall transfer to BI PRIMARY SCREENING technology immediately upon
signing of this Agreement and shall provide necessary reagents and assist BI in
establishing the high-throughput PRIMARY SCREENING assay at BI.
5.2 VP shall transfer SECONDARY ASSAY technology and reagents to BI and
shall perform SECONDARY ASSAYS on ACTIVE COMPOUNDS selected in PRIMARY SCREENING
of the BI chemical compound LIBRARY. VP shall transfer SECONDARY ASSAYS to BI
according to the schedule outlined in Appendix I.
5.3 VP shall reveal to BI structures of all ACTIVE COMPOUNDS discovered
and optimized by VP to inhibit hepatitis C virus helicase activity in both
PRIMARY SCREENING and SECONDARY ASSAYS performed by VP.
5.4 BI and VP shall perform COMPOUND OPTIMIZATION on ACTIVE COMPOUNDS
chosen by the STEERING COMMITTEE for COMPOUND OPTIMIZATION regardless of the
origin of the ACTIVE COMPOUND. BI and VP shall provide data from all COMPOUND
OPTIMIZATION in the FIELD to the STEERING COMMITTEE.
6. DEVELOPMENT CANDIDATES AND DEVELOPMENT.
---------------------------------------
6.1 The STEERING COMMITTEE shall review data on all ACTIVE COMPOUNDS and
shall recommend to the IRDC ACTIVE COMPOUNDS for consideration as DEVELOPMENT
CANDIDATES.
6.2 In choosing a DEVELOPMENT CANDIDATE, the IRDC shall use the same
procedures, standards and criteria for selection as it uses for the evaluation
of other compounds or products in the ordinary operation of BI's business, and
as are reasonable and ordinary in the industry. If BI chooses to promote an
ACTIVE COMPOUND to DEVELOPMENT CANDIDATE status, BI shall have full control and
authority over DEVELOPMENT, registration and commercialization of DEVELOPMENT
CANDIDATE in the TERRITORY. BI will exercise reasonable efforts and diligence in
developing and commercializing such DEVELOPMENT CANDIDATE, and in undertaking
investigations and actions required to obtain appropriate governmental approvals
to market such DEVELOPMENT CANDIDATE for such countries judged
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by BI to hold commercial potential in the TERRITORY. All such activity shall be
undertaken at BI's expense.
6.3 BI shall keep VP reasonably informed, on at least a semi-annual
basis, of the progress of BI's efforts to develop and commercialize DEVELOPMENT
CANDIDATES. If, during the course of DEVELOPMENT, registration and
commercialization of DEVELOPMENT CANDIDATES, BI, for any reason whatsoever,
ceases to continuously and diligently pursue, or chooses to halt the
DEVELOPMENT, registration or commercialization of the DEVELOPMENT CANDIDATE, it
shall promptly inform VP.
6.4 BI shall have the right to use the assays and reagents supplied to
it by VP for research purposes. This right will continue if this Agreement
terminates after its initial term of two years, or any one year extensions
thereof. The right to use these assays and reagents will be subject to the
provisions of Section 2 when the use is within the FIELD. If VP should desire to
have exclusive rights to use any proprietary assay or reagent developed
hereunder during the TERM OF AGREEMENT or in any one year extension thereof by
VP in the FIELD for any reason whatsoever, BI will confer with VP about the
possibility of VP obtaining such exclusive rights.
6.5 If BI ceases DISCOVERY and DEVELOPMENT of all DEVELOPMENT
CANDIDATES for any reason whatsoever, BI shall promptly inform VP, and VP shall
at its own expense or in partnership with a THIRD PARTY, have exclusive rights
to complete the DEVELOPMENT, registration and commercialization of the
DEVELOPMENT CANDIDATE in the FIELD in the TERRITORY subject to the provisions of
Section 2. The parties shall negotiate in good faith the amount and payment
schedule of compensation, if any, due BI to reimburse its DEVELOPMENT costs. If
the parties fail to reach agreement, the parties will jointly license the
DEVELOPMENT CANDIDATE to a THIRD PARTY, with each party sharing equally in any
proceeds after BI has reimbursed its DEVELOPMENT costs.
7. EXCHANGE OF INFORMATION AND CONFIDENTIALITY.
--------------------------------------------
7.1 This Agreement contemplates the exchange of certain confidential
and proprietary information in the FIELD (the "Confidential Information") by one
party (the "Disclosing Party") to the other party (the "Receiving Party") during
the term of Agreement and the development of certain confidential and
proprietary information in the FIELD in the course of the collaboration by the
parties hereunder (the "Research Information") (the Confidential Information and
the Research Information are collectively referred to hereinafter as the
"Information"). With respect to the Confidential Information of the Disclosing
Party, the Receiving Party, and with respect to the Research Information, each
party, shall:
7.1.1 use the respective Information only for the purpose of
performing its duties or exercising its rights subject to the terms and
conditions of this Agreement;
7.1.2 safeguard the respective Information against disclosure to
others with the same degree of care as it exercises with its own data of a
similar nature; and
7.1.3 not disclose the respective Information to others (except to
its employees, agents, consultants, sublicensees, distributors or investors and
potential investors who are bound to the Receiving Party by a like obligation of
confidentiality and restriction on use) without the express written consent of
the other party.
7.2 The obligations of Section 7.1 shall not apply to that
Confidential Information of the Disclosing Party which:
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7.2.1 the Receiving Party can demonstrate by written records
was previously know to it;
7.2.2 is now, or in the future becomes, public knowledge other
than through the acts or omissions of the Receiving Party;
7.2.3 is lawfully obtained by the Receiving Party from sources
independent of the Disclosing Party;
7.2.4 the Receiving Party can demonstrate was independently
developed by employees of the Receiving Party having no knowledge of such
Confidential Information; or
7.2.5 the Receiving Party is required to disclose by law or
pursuant to the direction of a court or government agency;
7.2.6 the Receiving Party is required to disclose to bankers
and other business associates if such persons have agreed in writing to keep the
information confidential to the same extent that the Receiving Party required
under this Agreement to keep such information confidential.
7.3 Nothing contained herein is intended to prevent either party
from using the Research Information to obtain necessary or appropriate
regulatory approvals for products developed hereunder.
7.4 The furnishing of the Confidential Information of the Disclosing
Party to the Receiving Party shall not constitute any grant or license to the
Receiving Party under any legal rights now or hereinafter held by the Disclosing
Party.
7.5 The obligations of this Article shall remain in effect during
the term of this Agreement and the five (5) year period beginning on the
termination date of this Agreement.
7.6 Neither party shall submit for written or oral publication any
manuscript, abstract or the like which includes Information, including without
limitation any data or other information relating to ACTIVE COMPOUND or
DISCOVERY without first obtaining the prior written consent of the other party,
which consent shall not be unreasonably withheld. The contribution of each party
shall be noted in all publications or presentations by acknowledgment or co-
authorship, whichever is appropriate.
8. OWNERSHIP; LICENSE AGREEMENT; PATENT PROSECUTION
------------------------------------------------
8.1 Each party shall have and retain sole and exclusive title to all
inventions, discoveries and BI or VP KNOW-HOW which are made, conceived, reduced
to practice or generated by its employees, agents, or other persons acting under
its authority in the course of or as a result of the collaboration hereunder.
Each party shall own a fifty percent (50%) undivided interest (joint ownership)
in all such inventions, discoveries and BI or VP KNOW-HOW made, conceived,
reduced to practice or generated jointly by employees, agents, or other persons
acting, under the authority of both parties in the course of or as a result of
the collaboration hereunder.
8.2 License.
--------
8.2.1 Nature of License. It is the parties' intention that
------------------
while pursuing the commercialization of a DEVELOPMENT CANDIDATE hereunder, BI
should have exclusive rights to so commercialize such DEVELOPMENT CANDIDATE, and
if, under Section 6.5, VP undertakes commercialization of such DEVELOPMENT
CANDIDATE that it have exclusive rights
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to so commercialize such DEVELOPMENT CANDIDATE. To implement such arrangement,
the parties hereby grant or agree to grant the following licenses:
8.2.2 Grant of License.
-----------------
8.2.2.1 DEVELOPMENT CANDIDATES Commercialized by BI. Subject
--------------------------------------------
to Section 8.2.2.2, with respect to PRODUCTS, during the period beginning on the
EFFECTIVE DATE and ending at the end of the last to expire ROYALTY PERIOD in the
TERRITORY with respect to such PRODUCTS, VP hereby grants to BI and its
AFFILIATES (i) an exclusive world-wide royalty-bearing right and license under
its interest in PATENTS and KNOW-HOW to conduct the research provided for herein
and to make, have made, use, sell, offer to sell and import such PRODUCTS in the
FIELD in the TERRITORY and (ii) the right to issue sublicenses to THIRD PARTIES
under its interest in the PATENTS and KNOW-HOW to make, have made, use, sell,
offer to sell and import such PRODUCTS so long as such THIRD PARTY agrees to be
bound by the terms and conditions of this Agreement. At the end of the last to
expire ROYALTY PERIOD said right and license shall be fully paid up.
8.2.2.2 DEVELOPMENT CANDIDATES Commercialized by VP. If at
--------------------------------------------
any time before or after the TERM OF Agreement and from time to time, VP
undertakes the commercialization of a PRODUCT subject to Sections 2.7 and 2.8,
then BI shall grant to VP for the ROYALTY Period an exclusive world-wide
royalty-bearing right and license under its interest in PATENTS and KNOW-HOW to
make, have made, use, sell, offer to sell and import such PRODUCTS in the FIELD
in the TERRITORY and (ii) the right to issue sublicenses to THIRD PARTIES under
its interest in the PATENTS and KNOW-HOW to make, have made, use, sell, offer to
sell and import such PRODUCTS so long as such THIRD PARTY agrees to be bound by
the terms and conditions of this Agreement. At the end of the last to expire
ROYALTY PERIOD said right and license shall be fully paid up.
8.3 Patent Prosecution.
-------------------
8.3.1 Each party shall promptly notify the other upon the
making, conceiving or reducing to practice of any invention or discovery
referred to in Section 8.1. With respect to any such invention,
8.3.1.1 BI shall have the first right, using in-house or
its usual outside legal counsel, to prepare, file, prosecute, maintain and
extend patent applications and patents concerning all such inventions and
discoveries made jointly by BI and VP, in countries of BI's choice throughout
the world; provided BI shall use reasonable efforts to obtain patent protection
in the United States, under the European Patent Convention and in Japan. VP
shall be designated as a joint owner on jointly owned inventions. BI shall bear
all costs and expenses with respect to such preparation, filing, prosecution,
maintenance and extension. BI shall solicit VP's advice and review of the nature
and text of any joint patent applications and prosecution matters related
thereto in reasonably sufficient time prior to filing thereof, and BI shall take
into account VP's comments related thereto.
8.3.1.2 Each of BI and VP shall have the first right, using
in-house or outside legal counsel selected at their respective sole discretion,
to prepare, file, prosecute, maintain and extend patent applications and patents
concerning all such inventions and discoveries owned in whole by such party in
countries of such party's choice throughout the world, for which such party
shall bear all costs and expenses.
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8.3.2 If either party to this Agreement elects not to file,
prosecute or maintain such PATENT applications or ensuing PATENTS or claims
encompassed by such PATENT applications or ensuing PATENTS in any country, each
party shall give the other party notice thereof within a reasonable period prior
to allowing such PATENT applications or PATENTS or such certain claims
encompassed by such PATENT applications or PATENTS to lapse or become abandoned
or unenforceable, and the other party shall thereafter have the right, at its
sole expense, to prepare, file, prosecute and maintain PATENT applications and
PATENTS or divisional applications related to such claims encompassed by such
PATENT applications or PATENTS concerning all such inventions and discoveries in
countries of its choice throughout the world.
8.3.3 In the event of the institution of any suit by a THIRD
PARTY against BI, VP or a sublicensee for PATENT infringement involving the
manufacture, use, sale, distribution or marketing of PRODUCTS, the party sued
shall promptly notify the other party in writing. BI and VP shall assist one
another and cooperate in any such litigation at the other's request without
expense to the requesting party.
8.3.4 If either party declines to continue a PATENT effort and
the other party elects to continue a PATENT effort at its cost, the declining
party shall grant exclusive rights to the electing party and shall transfer its
rights in the Joint PATENT Right in question and associated Joint Technology to
the electing party. The cost of any such exclusivity or transfer shall be borne
by the electing party. Prior to such transfer a joint owner shall not exercise
its joint ownership rights or undivided interest outside the specific licensing
provisions as set forth hereinabove.
8.3.5 Notwithstanding the provisions of Section 8.3.1.1, each
party shall, at its own expense, provide reasonable assistance to the other
party to facilitate filing of all PATENT applications covering inventions
referred to in Section 8.1 and shall execute all documents deemed necessary or
desirable therefor.
8.3.6 In the event of the institution of any suit by a THIRD
PARTY against BI, VP or their sublicensees for PATENT infringement involving the
DISCOVERY, the party sued shall promptly notify the other party in writing.
9. PAYMENTS AND RECORD-KEEPING.
----------------------------
9.1 Quarterly Payments. During the ROYALTY PERIOD, within 60 days after
-------------------
the end of each calendar quarter in which royalties are payable by a party
hereto (a "Royalty Paying Party"), the Royalty Paying Party shall deliver to the
other party a true accounting of all NET SALES, as applicable during such
quarter and shall at the same time pay all royalties due in accordance with this
Section 9.1. Such accounting shall show the other party NET SALES, as applicable
in the TERRITORY and a calculation of royalties with respect thereto, including
the calculation of all adjustments. Within sixty (60) days after the end of each
calendar quarter, the Royalty Paying Party shall pay to the other party all
royalties that became payable under this Agreement during such quarter. If
royalties are not received by the other party when due, the Royalty Paying Party
shall pay to the other party interest charges at a rate of [xxxxxxxxxxxxxxxx]
simple interest per annum. Interest is calculated from the date payment was due
until actually received by the other party.
9.2 Exchange Rate; Blocked Funds. All payments under this Agreement shall
-----------------------------
be made in United States dollars. If a Royalty Paying Party receives payment for
PRODUCTS in currency other than U.S. dollars, payments payable to the other
party shall be computed using the exchange rate and exchange modality
customarily used by the Royalty Paying Party on the date that the payment to the
other party is actually collected from the third party. In the event that either
party is prohibited or restricted from paying royalties by reason of the laws or
currency regulations of a country (Blocked Funds), the Royalty Paying Party
shall promptly notify the other party thereof.
16
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The other party shall advise the Royalty Paying Party in writing of the legal
means by which the Blocked Funds should be disposed in that country, including,
without limitation, the deposit of Blocked Funds in a bank or similar
institution in that country or the payment of the Blocked Funds to a person or
persons in that country. The Royalty Paying Party shall receive a royalty credit
payable under Section 2 of this Agreement in the amount of any Blocked funds
paid in accordance with the other party's written direction.
9.3 Record Keeping and Auditing. Each party shall maintain complete and
---------------------------
accurate records (the "Records") containing all information necessary for a
determination of the amounts payable to either party under this Agreement. The
Records for each calendar quarter shall be maintained for three (3) years after
such quarter. Upon written request by a party, the other party shall provide
such party or independent certified public accountants retained and paid for by
such party access to the Records not more than once every calendar year solely
for the purpose of verifying such party's compliance with its payment
obligations under this Agreement.
9.4 Withholding Taxes.
------------------
9.4.1 If required by law, each party shall deduct any withholding
taxes and other statutory duties from the royalties and fees agreed upon under
this Agreement and pay them to proper tax authorities required by law applicable
at the date of payment. The Royalty Paying Party shall maintain official
receipts of payment of any withholding taxes and forward these receipts to the
other party.
9.4.2 The parties will exercise their best efforts to ensure that
any withholding taxes imposed are reduced as far as possible under the
provisions of the current or any future double taxation agreement between the
USA, the Federal Republic of Germany, and any other relevant countries.
9.4.3 For payments made by BI, according to German Law this
reduction requires that the German Bundesamt fur Finanzen issues a certificate
of tax exemption. The competent tax authority of VP shall certify that VP is
resident of the USA on the Application For Tax Exemption using the full address
of VP including street name and building number. Every three years VP shall
submit unsolicited a new Application For Tax Exemption, which complies with the
above mentioned prerequisites.
10. USE OF NAMES AND TRADEMARKS. Nothing in this Agreement confers to either
----------------------------
party, the right to use any name, trade name, trademark, or other designation
(including contraction, abbreviation or simulation of any name, trade name,
trademark or other designation) of the other party in advertising, publicity, or
other promotional activities.
11. INDEMNIFICATION
---------------
11.1 Indemnification. Each party shall indemnify and hold harmless the
----------------
other party, its affiliates and their respective officers, agents and employees
(collectively, the "Indemnified Parties"), from and against any and all
liability, loss, damage, action, claim or expense suffered or incurred by the
Indemnified Parties (including reasonable attorney's fees) (individually, a
"Liability" and collectively, the "Liabilities") which results from or arises
out of:
11.1.1 the DEVELOPMENT, use, manufacture, promotion, sale,
distribution or other disposition of any PRODUCTS by such party, its AFFILIATES,
assignees, vendors, sublicensees or other non-affiliates, including all claims
for personal injury, death or property damage arising from any of the foregoing;
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11.1.2 failure to comply with any regulation of the FDA or similar
domestic or foreign regulatory authority applicable to a PRODUCT;
11.1.3 breach by the other party of any license provisions contained
in this Agreement;
11.1.4 the enforcement by the Indemnified Party of its rights to be
indemnified under this Section; and
11.1.5 the indemnification obligation shall not apply to the extent
that a liability results or arises from the willful conduct of the Indemnified
Party.
11.2 Procedures. The Indemnified Party shall promptly notify the
-----------
Indemnifying Party (the "Indemnitor") of any claim or action (the "Claim")
giving rise to a Liability. The Indemnitor shall have the right to approve
settlement of the Claim, provided that the Indemnified Party shall have the
right to control the defense or settlement of any Claim which included
provisions other than the payment of money that could have a material and
adverse impact on the business of the Indemnified Party. The Indemnified Party
shall cooperate reasonably, assist and give all necessary authority and
reasonably required information. Neither party shall settle or compromise any
such claim or action in a manner that imposes any restrictions, obligations or
grant any rights to the PATENTS and the KNOW-HOW on the other party without the
written consent of the other party. The indemnification rights of the
Indemnified Party contained herein are in addition to all other rights which
such Indemnified Party may have at law or in equity or otherwise.
12. PATENT NOTICES, ETC. All PRODUCTS shipped to and/or sold in other
--------------------
countries shall be marked and labeled in such a manner as to conform with all
applicable laws of the country where such PRODUCTS are sold.
13. COMPLIANCE WITH LAWS. Each party shall comply with all prevailing laws,
---------------------
rules and regulations pertaining to the DEVELOPMENT, testing, manufacture,
marketing and import or export of PRODUCTS. Each party shall comply with all
United States laws and regulations controlling the export of commodities and
technical data, and shall be solely responsible for any violation thereof by
each party. Each party shall comply with all FDA regulations applicable to each
PRODUCT. In addition, each party shall promptly notify the other party of any
information within its's possession that is not known to the other party
concerning any serious or unexpected side effect, injury, toxicity or
sensitivity reaction or any unexpected incidence and the severity thereof
associated with the uses, studies, field trials, investigations, test and
marketing of a PRODUCT.
14. TERM AND TERMINATION
--------------------
14.1 TERM. At the end of the TERM, this Agreement may be extended for
----
additional successive one year terms, in the following manner: VP will provide
BI with written notice, no later than one hundred eighty (180) days before the
end of the then current term, of VP's desire to extend the Agreement. BI will
provide written notice to VP no later than ninety (90) days prior to the end of
the then current term of BI's desire to extend the Agreement. Upon either such
notice, the parties will negotiate mutually acceptable terms for the extension
of the Agreement. If mutually agreeable terms are not reached by the end of the
term, the Agreement will terminate.
14.2 Termination.
------------
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14.2.1 Material Breach. Either party may terminate this Agreement for a
---------------
material breach by the other party by giving the breaching party written notice,
specifying the breach relied on, and giving the breaching party thirty (30) days
to cure such breach. If the default has not been cured at the end of the thirty
(30) day period, then, upon notice thereof to the breaching party by the other,
this Agreement shall terminate.
14.2.2 Bankruptcy. Upon the occurrence of a BANKRUPTCY EVENT by either
----------
party, the other party may immediately terminate this Agreement with no
liability whatsoever to the first party, subject to relevant legislation.
14.2.3 Emergency Termination of Discovery. Either party may terminate
----------------------------------
the DISCOVERY under this Agreement immediately upon delivering written notice to
the other party if continuing the DISCOVERY would violate any local, state or
federal law.
14.3 Rights and duties upon termination.
----------------------------------
14.3.1 Any termination of this Agreement will have no effect on
performance obligations or amounts to be paid which have accrued up to the date
of such termination.
14.3.2 Survival. Sections 2.4 (Royalties to VP), 2.5 (Royalties to BI),
--------
2.7 (Sublicense Royalties), 2.8 (License from THIRD PARTY), 6.4 (Right to use
Assays and Reagents), 6.5 (Transfer of DEVELOPMENT CANDIDATE), Articles 7
(Exchange of Information Confidentiality), 8 (Ownership; License; PATENT
Prosecution), 9 (Payments and Record Keeping), 10 (Trademarks), 11
(Indemnification), 12 (PATENT Notices), 13 (Compliance with Laws), 15
(Warranties), 16 (Force Majeure), 17 (Governing Law), 18 (Arbitration), 19
(Waiver of Breach), 20 (Severability), 21 (Entire Agreement), 22 (Independent
Contractors), 23 (Notices), 24 (Assignment) and any definitions hereunder
applicable to such Sections and Articles shall survive termination of this
Agreement and shall continue for their respective stated periods of time or if
no such period is stated until the last to expire ROYALTY PERIOD in the
TERRITORY.
14.3.3 Termination of the Agreement in accordance with the provisions
hereof shall not limit remedies which may be otherwise available in law or
equity.
15. WARRANTIES AND REPRESENTATIONS. Each party represents and warrants to the
------------------------------
other that (i) it has the authority and right to enter into this Agreement and
(ii) its execution, delivery and performance of this Agreement will not conflict
in any material fashion with the terms of any other agreement or instrument to
which it is or becomes a party or by which it is or becomes bound.
16. FORCE MAJEURE. Neither party shall be liable for failure to perform or for
-------------
delay in performing any provision of this Agreement that such party is required
to perform, if such failure or delay is caused by labor disputes, lack of supply
of materials through no fault of such party, an act of God, riot, fire,
explosion, flood, hostilities of war, executive legislation or administrative
order, restriction or controls of any governmental agency, or other conditions
reasonably beyond the control of such party. However, if any such cause results
in a delay in performance of this Agreement by either party by more than sixty
(60) days, then the parties shall meet and discuss what, if any, modifications
of the terms of the Agreement may be required in order to arrive at an equitable
solution.
17. GOVERNING LAW. This Agreement shall be governed by and construed,
-------------
interpreted, enforced and applied in accordance with the laws of the
Commonwealth of Pennsylvania, without giving effect to any conflicts of laws
principles thereof.
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18. ARBITRATION. Any dispute between the parties, other than a question
-----------
relating to patent validity, which arises under this Agreement, or is otherwise
related to this Agreement and which cannot be resolved by good faith negotiation
between the parties within sixty (60) days shall be resolved by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association (the "AAA"), except as modified by this Section. The number of
arbitrators shall be three. The arbitration proceeding shall be conducted in
the English language. Any arbitration proceeding shall be brought in New York
City unless the parties agree in writing to conduct the arbitration in another
location. The arbitration decision shall be binding and not be appealable to
any court in any jurisdiction. The prevailing party may enter such decision in
any court having competent jurisdiction. Each party shall pay its own expenses
of arbitration and the expenses of the arbitrator shall be equally shared except
that if, in the opinion of the arbitrator, any claim by a party hereto or any
defense or objection thereto by the other party was unreasonable, the arbitrator
may in its discretion assess as part of the award all or any part of the
arbitration expenses of the other party (including reasonable attorneys' fees)
and expenses of the arbitrator against the party raising such unreasonable
claim, defense or objection.
19. WAIVER OF BREACH. The failure of either party at any time or times to
----------------
require performance of any provision hereof shall in no manner affect its rights
at a later time to enforce the same. No waiver by either party of any condition
or term in any one or more instances shall be construed as a further or
continuing waiver of such condition or term or of another condition or term.
20. SEVERABILITY. In the event any provision of this Agreement shall be held
------------
illegal, void or ineffective, the remaining portions hereof shall remain in full
force and effect so long as such remaining portions do not materially change the
intent of this Agreement or the rights or obligations of the parties hereunder.
If any of term or provision of this Agreement is in conflict with any applicable
statute or rule of law in any jurisdiction, then such term or provision shall be
deemed inoperative in such jurisdiction to the extent of such conflict and the
parties will renegotiate the affected terms and conditions of this Agreement to
resolve any inequities. It is the intention of the parties that, if any court
or other tribunal construes any provision or clause of this Agreement, or any
portion thereof, to be illegal, void or unenforceable because of the duration of
such provision or the area or matter covered thereby, such court shall reduce
the duration, area or matter of such provision and enforce such provision in its
reduced form.
21. ENTIRE AGREEMENT; AMENDMENT. This Agreement and any Exhibits or Appendices
---------------------------
hereto entered into as of the date written above, constitutes the entire
Agreement between the parties relating to the subject matter hereof and
supersedes all previous writings and understandings. No terms or provisions of
this Agreement shall be varied or modified by any prior or subsequent statement,
conduct or act of either of the parties, except that the parties may amend this
Agreement by written instruments specifically referring to and executed in the
same manner as this Agreement.
22. INDEPENDENT CONTRACTORS. The parties hereto are independent contractors.
-----------------------
This Agreement shall not be deemed to establish a joint venture between BI and
VP, nor shall any principal agent or employer-employee relationship exist
between BI and VP. Neither party shall have the authority to make commitments
for or to bind the other party to any obligation to THIRD PARTIES.
Confidental 20
<PAGE>
23. NOTICES. All notices given or requests made under this Agreement shall be
-------
in writing and shall be delivered by hand or a reputable express delivery
service, mailed by certified or registered mail with a return receipt requested
or sent by fax to the party for which it is intended at its address or fax
number as set forth below, or at such other addresses or fax number as the
addressee may have designated to the other party.
BI:
Boehringer Ingelheim Pharmaceuticals, Inc.
900 Ridgebury Road
Ridgefield, CT 06877
FAX No. (203) 791-6180
Attention: Vice President Legal Affairs
cc:
Bio-Mega/Boehringer Ingelheim Research Incorporated
2100 Rue Cunard
Laval, Quebec, Canada H7S2G5 FAX No. (514) 682-8434
Attention: President and CEO
Boehringer Ingelheim International GmbH
Postbox 200
D-55216 Ingelheim/Rhein
Germany FAX No. ###-##-####/77-4080
Attention: Corporate Legal Department
VP:
ViroPharma, Inc.
76 Great Valley Parkway
Malvern, Pennsylvania 19355
FAX No. (610) 651-0588
Attention: Business Development Department
24. ASSIGNMENT. This Agreement and the licenses herein granted shall be
----------
binding upon and inure to the benefit of the successors in interest of the
respective parties. Neither this Agreement nor any interest hereunder shall be
assignable by either party without the written consent of the other provided,
however, BI or VP may assign this Agreement or any right hereunder to any
AFFILIATE or to any corporation with which it may merge or consolidate, or to
which it may transfer all or substantially all of its assets to which this
Agreement relates, without obtaining the consent of the other party unless such
other party can establish that such assignment would have a materially adverse
effect upon the DEVELOPMENT, commercialization or competitive position of
PRODUCTS, or would otherwise be materially adversely effect the business of such
other party.
25. COUNTERPARTS. This Agreement shall become binding as of the EFFECTIVE DATE
------------
when any one or more counterparts hereof, individually or taken together, shall
bear the signatures of each of the parties hereto. This Agreement may be
executed in any number of counterparts, each of which shall be an original as
against any party whose signature appears thereon but all of which together
shall constitute but one and the same instrument.
Confidental 21
<PAGE>
IN WITNESS WHEREOF, the parties, through their authorized of officers,
have executed this Agreement as of the date first written above.
<TABLE>
<CAPTION>
<S> <C>
Boehringer Ingelheim Pharmaceuticals, Inc. VIROPHARMA,INC.
/S/ Holger Huels /S/ Claude H. Nash. Ph.D
- ------------------------------ -----------------------------
By: Holger Huels By: Claude H. Nash, Ph.D.
Title: Senior Vice President of Finance and Treasurer Title: President and CEO
Date: 07/23/96 Date: 7/22/96
---------- --------
</TABLE>
Confidental 22
<PAGE>
APPENDIX I
ASSAYS, REAGENTS, COMPOUNDS AND TECHNOLOGY
TO BE TRANSFERRED TO BI
[REDACTED]
Confidential 23
<PAGE>
APPENDIX II
SECONDARY ASSAYS
[REDACTED]
Confidential
24
<PAGE>
APPENDIX III
RESEARCH PLAN
[REDACTED]
Confidential
25
<PAGE>
VIROPHARMA, INC.
EMPLOYMENT AGREEMENT
This Employment Agreement is made on this _____ day of ____________, by
________________ ("Employee") in favor of VIROPHARMA, IN. ("Employer").
Employee's execution of this Agreement is a prerequisite to Employer's
employment of Employee.
NOW THEREFORE, in consideration of Employer's employment of Employee,
Employee, intending to be legally bound, hereby agrees as follows:
AGREEMENT
---------
1. Employee shall record descriptions of all of Employee's work in the manner
directed by Employer. All such records and copies thereof, whether compiled
or kept at home, or at the premises of Employer, and all samples and
experimental materials, will be the exclusive property of Employer and shall
be returned upon termination of Employee's employment.
2. All inventions, discoveries and ideas made or conceived by Employee, solely
or with others, while employed by Employer, during or after working hours,
which are useful in or related to the business, work or investigations of
Employer, or which have been made or conceived wholly or partially with the
use of Employer's time, material, facilities, or trade secret information,
belong exclusively to Employer. Employee agrees that he/she shall have no
claim for additional compensation for such inventions, discoveries or ideas.
3. Employee shall promptly disclose to his/her immediate superior or other
authorized person of Employer any such invention, discovery or idea. At the
request and expense of Employer, either before or after termination of
Employee's employment, Employee shall assist in acquiring and maintaining
discoveries and ideas. Employee's assistance will include the signing of
applications for patent, assignments and other papers, cooperating in
necessary proceedings, and taking any other steps considered desirable by
Employer.
4. Employee shall not, either during or after his/her employment, disclose any
confidential information acquired because of such employment without the
prior written consent of Employer. In general, any information relating to
research, processes, products, formulas, methods, apparatus, equipment,
costs, business studies, business procedures and finances and any samples and
materials which have not been made public shall be considered confidential.
5. During the term of Employee's employment, Employee shall not engage in any
activity in competition with or against the best interests of Employer.
<PAGE>
EMPLOYMENT AGREEMENT
Page 2
6. Copyrights to all writings, works of art or other copyrightable materials
prepared by Employee during the course of or as part of the duties of
Employee's employment belong exclusively to Employer. Employee shall assist
Employer in acquiring and maintaining Employer's rights in such work.
7. Any similar agreement with Employer previously signed by Employee is hereby
superseded except with respect to obligations already incurred under any such
similar agreement.
8. Employee shall observe safety and health regulations and report all known
hazards to his/her supervisor or safety office.
9. This agreement shall be binding upon Employee's heirs, executors,
administrators or other legal representatives.
EMPLOYEE:
--------------------------
--------------------------
--------------------------
ACCEPTED AND AGREED TO:
BY:
----------------------------------
VIROPHARMA, INC.
BY:
----------------------------------
Claude H. Nash, President & CEO
<PAGE>
INDEMNIFICATION AGREEMENT
INDEMNIFICATION AGREEMENT, dated as of June 16, 1995, by and between
Viropharma, Inc., a Delaware corporation ("Company"), and the director of the
Company whose name appears on the signature page of this Agreement (such
director, together with any corporation, partnership, trust, association or
other entity on whose behalf the director is or was serving or with whom such
director is or was otherwise employed, affiliated or associated in connection
with his service as a director of the Company, being hereinafter referred to as
the "Indemnitee"):
WHEREAS, highly competent persons are becoming more reluctant to serve as
directors of corporations unless they are provided with reasonable protection
through insurance or indemnification against risks of claims and actions against
them arising out of their service to, and activities on behalf of corporations;
and
WHEREAS, the Board of Directors of the Company (the "Board") has determined
that the Company should act to assure such persons that there will be increased
certainty of such protection in the future; and
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and
WHEREAS, Indemnitee is willing to serve and to take on additional service
for or on behalf of the Company on the condition that Indemnitee be so
indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
Section 1. Services by Indemnitee. Indemnitee agrees to serve as a
director of the Company or other corporation, partnership, joint venture or
other enterprise affiliated with the Company (all of which are collectively
referred to as an "Affiliate") as a director. Notwithstanding anything contained
herein, this Agreement shall not create a contract of employment between the
Company or an Affiliate and the Indemnitee and the termination of the
Indemnitee's relationship with the Company or an Affiliate by either party
hereto shall not be restricted by this Agreement.
Section 2. Indemnification. Subject to Section 13 below, the Company
shall indemnify Indemnitee for, and hold Indemnitee harmless from and against,
any losses, liabilities, claims, judgments, fines or Expenses (as defined below)
at any time incurred by, or assessed against Indemnitee arising out of or in
connection with the service of Indemnitee as an officer, director, advisory
director, Board Committee member or officer of the Company or of an Affiliate
(collectively referred to as a "Officer or Director of the Company") to the
fullest extent permitted by the laws of the State of Delaware in effect on the
date hereof or as such laws may from time to time hereafter be amended to
increase the scope of such permitted indemnification, provided, however, the
Company shall indemnify an Indemnitee in connection with a proceeding instituted
by an Indemnitee on behalf of the Company, and in Indemnitee's
<PAGE>
capacity as an Officer or Director of the Company (other than an action to
enforce indemnification rights under this Agreement), only if such Proceeding
(as defined below) is authorized by the Board of Directors in the manner set
forth herein. Without diminishing the scope of the indemnification provided by
this Section 2, the rights of indemnification of Indemnitee provided hereunder
shall include but shall not be limited to those rights set forth hereinafter.
Section 3. Action or Proceeding Other Than an Action by or in the Right
of the Company. Subject to Section 13 below, the Indemnitee shall be entitled to
the indemnification rights provided herein if Indemnitee is a person who was or
is made a party or is threatened to be made a party to any pending, completed or
threatened Proceeding other than an action by or in the right of the Company, by
reason of (a) the fact that Indemnitee is or was an Officer or Director of the
Company, an Affiliate or any other entity which Indemnitee is or was serving at
the request of the Company, or (b) anything done or not done by Indemnitee in
any such capacity. Pursuant to this Section, Indemnitee shall be indemnified
against Expenses, losses, claims, liabilities, judgments, fines and amounts paid
in settlement (subject to Section 7 below) incurred by Indemnitee or on
Indemnitee's behalf in connection with any Proceeding, if Indemnitee acted in
good faith and in a manner Indemnitee reasonably believed to be in, or not
opposed to the best interests of the Company, and, with respect to any criminal
Proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 4. Actions by or in the Right of the Company. Subject to Section
13 below, Indemnitee shall be entitled to the indemnification rights provided
herein if Indemnitee is a person who was or is made a party or is threatened to
be made a party to any pending, completed or threatened Proceeding brought by or
in the right of the Company to procure a judgment in its favor by reason of (a)
the fact that Indemnitee is or was an Officer or Director of the Company, an
Affiliate or any other entity which Indemnitee is or was serving at the request
of the Company, or (b) anything done or not done by Indemnitee in any such
capacity. Pursuant to this Section 4, Indemnitee shall be indemnified against
Expenses, losses, claims, liabilities, judgments, fines and amounts paid in
settlement (subject to Section 7 below) incurred by Indemnitee or on
Indemnitee's behalf in connection with any Proceeding if Indemnitee acted in
good faith and in a manner Indemnitee reasonably believed to be in or not
opposed to the best interests of the Company. Notwithstanding the foregoing
provisions of this Section 4, no such indemnification shall be made in respect
of any claim, issue or matter as to which Delaware law expressly prohibits such
indemnification by reason of an adjudication of liability of Indemnitee to the
Company (or otherwise); provided, however, that in such event such
indemnification shall nevertheless be made by the Company to the extent that the
Court of Chancery of the State of Delaware or the court in which such action or
suit was brought shall determine equitable under the circumstances.
Section 5. Indemnification for Costs, Charges and Expenses of Party Who
is Wholly or Partly Successful. Subject to Sections 7 and 13 below,
notwithstanding any provision of this Agreement to the contrary, to the extent
that Indemnitee has been wholly successful on the merits or otherwise involved
in any Proceeding on any claim, issue or matter, Indemnitee shall be indemnified
against all Expenses incurred by Indemnitee or on Indemnitee's behalf in
- 2 -
<PAGE>
connection therewith. If Indemnitee is not wholly successful in such Proceeding
but is successful, on the merits or otherwise, as to one or more but less than
all claims, issues or matters in such Proceeding, the Company shall indemnify
Indemnitee to the maximum extent permitted by law, against all Expenses,
judgments, penalties, fines and amounts paid in settlement, incurred by
Indemnitee. For purposes of this Section and without limitation, the termination
of any such claim, issue or matter by dismissal with or without prejudice shall
be deemed to be a wholly successful result as to such claim, issue or matter.
Section 6. Indemnification for Expenses of a Witness. Notwithstanding any
other provision of this Agreement, to the extent that the Indemnitee is, by
reason of the fact that he or she is or was a Director of the Company, an
Affiliate or any other entity which Indemnitee is or was serving at the request
of the Company, a witness in any Proceeding, Indemnitee shall be indemnified by
the Company against all Expenses actually and reasonably incurred by Indemnitee
or on Indemnitee's behalf in connection therewith.
Section 7. Notification and Defense of Claim. Not later than thirty (30)
days after receipt by Indemnitee of notice of the commencement of any
Proceeding, Indemnitee will, if a claim in respect thereof is made against the
Company under this Agreement, notify the Company of the commencement thereof;
but the omission so to notify the Company will not relieve it from any liability
which it may have to Indemnitee otherwise than under this Agreement. With
respect to any such Proceeding as to which Indemnitee notifies the Company of
the commencement thereof:
(a) the Company (subject to this Section 7) will be entitled to participate
therein at its own expense;
(b) except as otherwise provided below, the Company may, assume the defense
thereof, with counsel reasonably satisfactory to Indemnitee. After notice from
the Company to Indemnitee of its election to assume the defense thereof, the
Company will not be liable to Indemnitee under this Agreement for any legal or
other expenses subsequently incurred by Indemnitee in connection with the
defense thereof except for reasonable costs of investigation or otherwise as
provided below. Indemnitee shall have the right to employ separate counsel in
such Proceeding but the fees and expenses of such counsel incurred after notice
from the Company of its assumption of the defense thereof shall be at the
expense of Indemnitee unless (i) the employment of counsel by Indemnitee has
been authorized by the Company, (ii) Indemnitee shall have reasonably concluded
that there may be a conflict of interest between the Company and Indemnitee in
the conduct of the defense of such Proceeding, or (iii) the Company shall not in
fact have employed counsel to assume the defense of such Proceeding, in each of
which cases the fees and expenses of Indemnitee's separate counsel shall be at
the expense of the Company. The Company shall not be entitled to assume the
defense of any Proceeding brought by or on behalf of the Company or as to which
Indemnitee shall have made the conclusion provided for in (ii) above; and
(c) notwithstanding anything to the contrary set forth in this Agreement,
the Company shall not be liable to indemnify Indemnitee under this Agreement for
any amounts
- 3 -
<PAGE>
paid in settlement of any action or claim effected without its written consent,
which shall not be unreasonably withheld; provided, however, that if the Company
-------- -------
shall not respond to Indemnitee's request for written consent within seven (7)
days from and after Indemnitee's request therefor, Indemnitee shall be permitted
to settle any Proceeding and the Company shall be liable to indemnify Indemnitee
hereunder. The Company shall not be permitted to settle any Proceeding which
shall adversely affect Indemnitee without his or her prior written consent.
Section 8. Advancement of Expenses and Costs. All Expenses incurred by or
on behalf of Indemnitee or reasonably expected by the Indemnitee in good faith
to be incurred by the Indemnitee within any three month period shall be paid by
the Company from time to time in advance of the final disposition of such
Proceeding within thirty days after the receipt by the Company of a statement or
statements from Indemnitee requesting from time to time such advance or
advances. Indemnitee's entitlement to such advancement of Expenses shall include
those incurred in connection with any proceeding by Indemnitee seeking an
adjudication or award in arbitration pursuant to this Agreement. Such statement
or statements shall reasonably evidence such expenses incurred or reasonably
expected to be incurred by Indemnitee in connection therewith and shall include
or be accompanied by a written undertaking by or on behalf of Indemnitee to
repay such amount if it shall ultimately be determined that Indemnitee is not
entitled to be indemnified therefor pursuant to the terms of this Agreement.
Section 9. Procedure for Determination of Entitlement to Indemnification.
(a) When seeking indemnification under this Agreement, Indemnitee shall
submit a written request for indemnification to the Company in the manner
contemplated by Section 7 hereof, which request shall include documentation or
information which is reasonably necessary for the Company to make a good faith
determination of Indemnitee's entitlement to indemnification hereunder and which
is reasonably available to Indemnitee. Such determination of Indemnitee's
entitlement to indemnification shall be made not later than 30 days after
receipt by the Company of the Indemnitee's written request for indemnification.
The Secretary of the Company shall, promptly upon receipt of Indemnitee's
request for indemnification advise the Board that Indemnitee has made such
request for indemnification.
(b) The entitlement of the Indemnitee to indemnification under this
Agreement shall be determined in the specific case by a majority vote of a
quorum of the Board consisting of Disinterested Directors (as hereinafter
defined). If such a quorum is not obtainable or if such majority vote of
Disinterested Directors so directs, the determination shall be made by
Independent Counsel (as defined below). All fees and expenses of the Independent
Counsel incurred in connection with acting pursuant to this Agreement shall be
borne by the Company.
(c) In the event the determination of entitlement is to be made by
Independent Counsel, such Independent Counsel shall be selected by the Board and
approved by Indemnitee. Upon failure of the Board to so select such Independent
Counsel or upon failure of Indemnitee to so approve, such Independent Counsel
shall be selected by the Chancellor of
- 4 -
<PAGE>
the State of Delaware or such other person as the Chancellor shall designate to
make such selection.
(d) If such majority of Disinterested Directors or Independent Counsel
shall have determined that Indemnitee is not entitled to indemnification to the
full extent of Indemnitee's request, Indemnitee shall have the right to seek a
determination as to his or her entitlement to indemnification in accordance with
the procedures set forth in Section 9 hereof.
Section 10. Presumptions and Effect of Certain Proceedings.
(a) Upon making such request for indemnification, Indemnitee shall be
presumed to be entitled to indemnification hereunder and the Company shall have
the burden of proof in determining that Indemnitee is not so entitled. If a
determination of whether Indemnitee is entitled to indemnification hereunder is
not made in accordance with Section 9 hereof within 30 days after receipt by the
Company of such request, the requisite determination of entitlement to
indemnification shall be deemed to have been made and Indemnitee shall be
absolutely entitled to such indemnification, absent (i) misrepresentation by
Indemnitee of a material fact in the request for indemnification or (ii) a final
judicial determination that all or any part of such indemnification is expressly
prohibited by Delaware law; provided, however, that at the initiation of an
action for a determination as to the Indemnitee's right to indemnification under
Delaware law, the Indemnitee shall at the outset of such judicial determination,
undertake to reimburse the Company upon such final determination. The
termination of any Proceeding by judgment, order, settlement or conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself,
adversely affect the rights of Indemnitee to indemnification hereunder except as
may be specifically provided herein, or create a presumption that Indemnitee did
not act in good faith and in a manner which Indemnitee reasonably believed to be
in or not opposed to the best interests of the Company or create a presumption
that with respect to any criminal action or proceeding that Indemnitee had
reasonable cause to believe that Indemnitee's conduct was unlawful.
(b) For purposes of any determination of good faith hereunder, Indemnitee
shall be deemed to have acted in good faith if Indemnitee's action is based on
the records or books of account of the Company, an Affiliate or any other entity
Indemnitee is or was serving at the request of the Company, including financial
statements, or on information supplied to Indemnitee by the officers of the
Company or an Affiliate in the course of their duties, or on the advice of legal
counsel for the Company or an Affiliate or on information or records given or
reports made to the Company or an Affiliate by an independent certified public
accountant or by an appraiser or other expert selected with reasonable care by
the Company or an Affiliate. The provisions of this Section 10(b) shall not be
deemed to be exclusive or to limit in any way the other circumstances in which
the Indemnitee may be deemed to have met the applicable standard of conduct set
forth in this Agreement.
(c) The knowledge and/or action, or failure to act, of any director,
officer, agent or employee of the Company, an Affiliate or any other entity
Indemnitee is or was serving at the
- 5 -
<PAGE>
request of the Company shall not be imputed to Indemnitee for purposes of
determining the right to indemnification under this Agreement.
Section 11. Remedies in Cases of Determination not to Indemnify or to
Advance Expenses.
(a) In the event that (i) a determination is made that Indemnitee is not
entitled to indemnification hereunder, (ii) advances are not made pursuant to
Section 8 or (iii) payment has not been timely made following a determination of
entitlement to indemnification pursuant to Sections 9 and 10, Indemnitee shall
be entitled to seek a final adjudication in an appropriate court of the State of
Delaware or any other court of competent jurisdiction of Indemnitee's
entitlement to such indemnification in advance. Alternatively, Indemnitee at
Indemnitee's option may seek an award in arbitration to be conducted by a panel
of three arbitrators in Delaware or in Philadelphia, Pennsylvania, pursuant to
the rules of the American Arbitration Association then prevailing, such award to
be made within 60 days following the filing of the demand for arbitration. The
Company shall not oppose Indemnitee's right to seek arbitration of any such
claim.
(b) In the event a determination has been made, in whole or in part, that
Indemnitee is not entitled to indemnification, any such judicial proceeding or
arbitration shall be made de novo and Indemnitee shall not be prejudiced by
reason of any prior determination that Indemnitee is not entitled to
indemnification.
(c) If a determination is made or deemed to have been made pursuant to
the terms of Section 9 or Section 10 hereof that Indemnitee is entitled to
indemnification, the Company shall be bound by such determination in any
judicial proceeding or arbitration in the absence of (i) a misrepresentation of
a material fact by Indemnitee or (ii) a final judicial determination that all or
any part of such indemnification is expressly prohibited by law.
(d) Subject to Section 13 below, the Company agrees that it shall be
precluded from asserting that the procedures and presumptions of this Agreement
are not valid, binding and enforceable, and further agrees to stipulate in any
such court or before any such arbitrators that the Company is bound by all the
provisions of this Agreement and is precluded from making any assertion to the
contrary.
(e) If, after the Company has previously determined that Indemnitee is
not entitled to indemnification, a court or arbitration panel determines that
Indemnitee is so entitled hereunder, to the extent deemed appropriate by the
arbitrators or the court, interest shall be paid by the Company to the
Indemnitee at a reasonable interest rate from and after the date on which the
Company had denied Indemnitee's entitlement to indemnification hereunder, for
amounts which the Company indemnifies the Indemnitee.
Section 12. Expenses Incurred by Indemnitee to Enforce this Agreement.
Reasonable expenses incurred by Indemnitee in connection with the preparation
and submission of Indemnitee's request for indemnification hereunder shall be
borne by the Company. In the
- 6 -
<PAGE>
event that Indemnitee is a party to or intervenes in any proceeding in which the
validity or enforceability of this Agreement is at issue or seeks an
adjudication or award in arbitration to enforce Indemnitee's rights under, or to
recover damages for breach of, this Agreement, Indemnitee, if Indemnitee
prevails in whole in such action, shall be entitled to recover from the Company
and shall be indemnified by the Company against, any Expenses incurred by
Indemnitee. If it is determined that the Indemnitee is entitled to
indemnification of part (but not all) of the indemnification so requested,
Expenses incurred in seeking enforcement of such partial indemnification shall
be reasonably prorated among such claims, issues or matters.
Section 13. Limitations on Indemnification. Notwithstanding anything to the
contrary set forth in this Agreement, and not in limitation of the restrictions
of the Company's liability under applicable law, no indemnity pursuant to this
Agreement shall be paid by the Company: (a) on account of any claim against
Indemnitee for an accounting of profits made from the purchase or sale by
Indemnitee of securities of the Company pursuant to the provisions of Section
16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar
provisions of any federal, state or local statutory law; (b) on account of
Indemnitee's conduct that was knowingly fraudulent or deliberately dishonest, or
that constituted willful misconduct; (c) on account of Indemnitee's conduct that
constituted a breach of Indemnitee's duty of loyalty to the Company or resulted
in any personal profit or advantage to which Indemnitee was not legally
entitled; (d) for which payment has actually been made to Indemnitee under a
valid and collectable insurance policy or under a valid and enforceable
indemnity clause, bylaw or agreement, except in respect of any excess beyond
payment under such insurance, clause, by-law or agreement; (e) if
indemnification is not lawful (and, in this respect, both the Company and
Indemnitee have been advised that the Securities and Exchange Commission
believes that indemnification for liabilities arising under the federal
securities laws is against public policy and is, therefore, unenforceable and
that claims for indemnification should be submitted to appropriate courts for
adjudication); or (f) in connection with any Proceeding by Indemnitee against
the Company or its directors, officers, employees or other agents other than as
set forth in Section 12 above, unless (i) such indemnification is expressly
required to be made by law, (ii) the Proceeding was authorized by the Board of
Directors of the Company, or (iii) such indemnification is provided by the
Company, in its sole discretion, pursuant to the powers vested in the Company
under the Delaware General Corporation Law; provided, however, that until the
final and non-appealable determination by a court of competent jurisdiction as
to any of the foregoing, the Indemnitee shall be entitled to indemnification
hereunder (including Expenses) so long as the Indemnitee executes an undertaking
to reimburse the Company promptly upon any such determination.
Section 14. Non-Exclusivity. The rights of indemnification and to receive
advances as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled under applicable
law, the Company's, any Affiliate's or other entity's certificate of
incorporation or other organizational document, the By-Laws, any agreement, a
vote of stockholders or a resolution of directors, or otherwise. No amendment,
alteration, rescission or replacement of this Agreement or any provision hereof
shall be effective as to Indemnitee with respect to any action taken or omitted
by such Indemnitee in Indemnitee's position with the Company or an Affiliate or
any other entity which
- 7 -
<PAGE>
Indemnitee is or was serving at the request of the Company prior to such
amendment, alteration, rescission or replacement.
Section 15. Duration of Agreement. This Agreement shall apply to any claim
asserted and any Expenses incurred in connection with any claim asserted on or
after the effective date of this Agreement and shall continue until and
terminate upon the later of: (a) 10 years after Indemnitee has ceased to occupy
any of the positions or have any of the relationships described in Sections 2, 3
or 4 of this Agreement; or (b) the final non-appealable termination of all
pending or threatened Proceedings of the kind described herein with respect to
Indemnitee. This Agreement shall be binding upon the Company and its successors
and assigns and shall inure to the benefit of Indemnitee and Indemnitee's
spouse, assigns, heirs, devisee, executors, administrators or other legal
representatives.
Section 16. Severability. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason whatsoever:
(a) the validity, legality and enforceability of the remaining provisions of
this Agreement (including without limitation, all portions of any Sections of
this Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby; and (b) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any Section of this Agreement containing any such provision held to
be invalid, illegal or unenforceable, that are not themselves invalid, illegal
or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable.
Section 17. Identical Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute one and the same Agreement.
Only one such counterpart signed by the party against whom enforceability is
sought needs to be produced to evidence the existence of this Agreement.
Section 18. Headings. The headings of the Sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
Section 19. Definitions. For purposes of this Agreement:
(a) "Disinterested Director" shall mean a director of the Company who
is not or was not a party to the Proceeding in respect of which
indemnification is being sought by Indemnitee.
(b) "Expenses" shall include all reasonable attorneys' fees and costs,
retainers, court costs, transcripts, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone
charges, postage, delivery service fees, and all other disbursements or
expenses reasonably incurred in connection with asserting or defending
claims.
- 8 -
<PAGE>
(c) "Independent Counsel" shall mean a law firm or lawyer that neither
is presently nor in the past five (5) years has been retained to represent:
(i) the Company or Indemnitee in any matter material to either such party,
or (ii) any other party to the Proceeding giving rise to a claim for
indemnification hereunder. Notwithstanding the foregoing, the term
"Independent Counsel" shall not include any firm or person who, under the
applicable standards of professional conduct then prevailing, would have a
conflict of interest in representing either the Company or Indemnitee in an
action to determine Indemnitee's right to indemnification under this
Agreement.
(d) "Proceeding" includes any action, suit, arbitration, alternate
dispute resolution mechanism, investigation, administrative hearing or any
other proceeding whether civil, criminal, administrative or investigative,
provided, however, that the term "Proceeding" shall include any action
instituted by an Indemnitee (other than an action to enforce
indemnification rights under this Agreement) only if such action is
authorized in the manner set forth in Section 8 hereof.
Section 20. Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto, provided, however, that any such mutually agreed upon
supplement, amendment or modification shall not require stockholder approval if
such modification, amendment or supplement is made to conform to any amendment
or revision of Delaware General Corporation Law which expands the Indemnitee's
right to indemnification thereunder or is otherwise beneficial to Indemnitee or
in the sole judgment of the Board of Directors of the Company, does not
materially and adversely affect the rights and protection of the Company.
Section 21. No Duplicative Payment. The Company shall not be liable under
this Agreement to make any payment of amounts otherwise indemnifiable hereunder
if and to the extent that Indemnitee has otherwise actually received such
payment under any insurance policy, contract, agreement or otherwise.
Section 22. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (i) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed, or (ii) mailed by
certified or registered mail with postage prepaid, on the third business day
after the date on which it is so mailed:
(a) If to Indemnitee, to the address appearing on the signature page
hereof.
(b) If to the Company to:
Viropharma, Inc.
1250 South Collegeville Road
Collegeville, PA 19426
Attention: Corporate Secretary
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
VIROPHARMA, INC.
By: /s/ Claude Nash
--------------------------------------------
C1aude Nash, President
INDEMNITEE
Signature: /s/ Stephen M. Dow
---------------------------------------------
Print Name: Stephen M. Dow
---------------------------------------------
Address: 550 Lytton Ave - #200
---------------------------------------------
City/State: Palo Alto, CA 94301
---------------------------------------------
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<PAGE>
EMPLOYEE STOCK PURCHASE AGREEMENT
This Agreement is made as of the 29th day of December, 1994, by and
between VIROPHARMA, INC., a Delaware corporation (the "Corporation"), and Dr.
Claude Nash (the Purchaser").
I. PURCHASE OF SHARES
1.1 Purchase. The Purchaser hereby purchases from the Corporation,
--------
and the Corporation hereby sells to the Purchase, 650,000 shares of the
Corporation's common stock, par value $0.001 per share (the "Purchased Shares")
at a purchase price equal to $0.05 per share or in consideration of services
rendered and/or to be rendered by the Purchase for the benefit of the
Corporation, for an aggregate consideration of $0.05 per share (the "Purchase
Price").
1.2 Payment. Unless the Purchase Price shall be in consideration of
-------
services as contemplated by Section 1.1 hereof, concurrently with the execution
of this Agreement, the Purchaser shall pay the cash portion of the Purchase
Price for the Purchased Shares, in cash, cash equivalent, or by delivery of a
promissory note. Purchaser shall also deliver to the Secretary of the
Corporation a duly executed blank Assignment Separate from Certificate (in the
form attached hereto as Exhibit A) and whatever additional documents may be
required by the Corporation as a condition for the purchase.
1.3 Delivery of Certificates. The certificates representing the
------------------------
Purchased Shares purchased hereunder and subject to the Corporation's Repurchase
Right under Article V hereof shall be held in escrow by the Secretary of the
Corporation as provided in Article VII hereof.
II. SECURITIES LAW COMPLIANCE
2.1 Exemption from Registration. The Purchased Shares have not been
---------------------------
registered under the Securities Act of 1933, as amended (the "1933 Act"), and
are being issued to Purchaser in reliance upon the exemption from such
registration provided by Section 4(2) of the 1933 Act.
2.2 Restricted Securities. Purchaser hereby confirms that Purchaser
---------------------
has been informed that the Purchased Shares are restricted securities under the
1933 Act and may not be resold or transferred unless the Purchased Shares are
first registered under the federal securities laws or unless an exemption from
such registration is available. Accordingly, Purchaser hereby acknowledges that
Purchaser is prepared to hold the Purchased Shares for an indefinite period and
that Purchaser is aware that Rule 144 of the Securities and Exchange Commission
(the
-1-
<PAGE>
"Commission") issued under the 1933 Act is not presently available to exempt the
offer and sale of the Purchased Shares from the registration requirements of the
1933 Act. Purchaser is aware of the adoption of Rule 144 promulgated under the
1933 Act by the Commission, which permits limited public resales of securities
acquired in a nonpublic offering, subject to the satisfaction of certain
conditions. Purchaser understands that Rule 144 is conditioned upon, among
other things: (i) the availability of certain current public information about
the Corporation, (ii) the resale occurring not fewer than two (2) years after
the party has purchased and paid for the securities to be sold, (iii) the sale
being made through a broker in an unsolicited "broker's transaction", and (iv)
the amount of securities being sold during any three-month period not exceeding
specified limitations. Purchaser acknowledges and understands that the
Corporation may not be satisfying the current public information requirement of
Rule 144 at the time Purchaser wishes to sell the Purchased Shares or other
conditions under Rule 144 which are required of the Corporation. If so,
Purchaser understands that he will be precluded from selling the securities
under Rule 144 even if the two-year holding period of said Rule has been
satisfied. Prior to Purchaser's acquisition of the Purchased Shares, Purchaser
acquired sufficient information about the Corporation to reach an informed and
knowledgeable decision to acquire the Purchased Shares. Purchaser has such
knowledge and experience in financial and business matters so as to make him
capable of utilizing said information to evaluate the risks of the prospective
investment and to make an informed investment decision. Purchaser is able to
bear the economic risk of his investment in the Purchased Shares. Subject to
Section 3.3 hereof, Purchaser agrees not to make, without the prior written
consent of the Corporation, any public offering or sale of the Purchased Shares
although permitted to do so pursuant to Rule 144(k) promulgated under the 1933
Act, until the earlier of the date on which the Corporation effects its initial
registered public offering pursuant to the Securities Act or the date in which
it becomes a registered company pursuant to Section 12(g) of the Securities and
Exchange Act of 1934.
2.3 Disposition of Shares. Purchaser hereby agrees that Purchaser
---------------------
shall make no disposition of the Purchased Shares (other than a permitted
transfer under Section 4.1 hereof) unless and until:
(a) Purchaser shall have notified the Corporation of the
proposed disposition and provided a written summary of the terms and conditions
of the proposed disposition;
(b) Purchaser shall have complied with all requirements of this
Agreement applicable to the disposition of the Purchased Shares; and
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<PAGE>
(c) Purchaser shall have provided the Corporation with an
opinion of counsel, in form and substance satisfactory to the Corporation, that
(i) the proposed disposition does not require registration of the Purchased
Shares under the 1933 Act or (ii) all appropriate action necessary for
compliance with the registration requirements of the 1933 Act or of any
exemption from registration available under the 1933 Act (including Rule 144
promulgated thereunder) has been taken.
The Corporation shall not be required (i) transfer on its books any
Purchased Shares that have been sold or transferred in violation of the
provisions of this Article II or (ii) to treat as the owner of the Purchased
Shares, or otherwise to accord voting or dividend rights to, any transferee to
whom the Purchased Shares have been transferred in contravention of this
Agreement.
2.4 Restrictive Legends. In order to reflect the restrictions on
-------------------
disposition of the Purchased Shares, the stock certificates representing the
Purchased Shares will be endorsed with restrictive legends affixed thereto
including one or both of the following legends:
(a) "The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder. The shares may not be sold or offered for
sale in the absence of (i) an effective registration statement for the shares
under such Act, (ii) a 'no action' letter of the Securities and Exchange
Commission with respect to such sale or offer, or (iii) an opinion of counsel
satisfactory to the Corporation that registration under such Act is not required
with respect to such sale or offer."
(b) If required by the authorities of any state in connection
with the issuance of the Purchased Shares, the legend or legends required by
such state authorities shall also be endorsed on all such certificates.
III. SPECIAL PROVISIONS
3.1 Shareholder Rights. Until such time as the Corporation actually
------------------
exercises its repurchase rights under this Agreement, Purchaser (or any
successor in interest) shall have all the rights of a shareholder (including
voting and dividend rights) with respect to the Purchased Shares, including the
Purchased Shares held in escrow under Article VII, but subject, however, to the
transfer restrictions of Article IV.
3.2 Section 83(b) Election. Purchaser understands that under Section
----------------------
83 of the Internal Revenue Code of 1986, as amended, and the rules and
regulations promulgated thereunder
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<PAGE>
(the "Code"), the difference between the Purchase Price paid for the Purchased
Shares and their fair market value on the date on which any forfeiture
restrictions applicable to such shares lapse will be reportable as ordinary
income at that time. For this purpose, the term "forfeiture restrictions"
includes the right of the Corporation to repurchase the Purchased Shares
pursuant to its restrictions on transferability and Repurchase Right under
Articles IV and V, respectively, of this Agreement. Purchaser understands that
he shall, at the time of the execution and delivery of this Agreement, be
required to elect to be taxed at the time the Purchased Shares are acquired
hereunder to the extent the fair market value of the Purchased Shares exceeds
the Purchase Price rather than when and as such Purchased Shares cease to be
subject to such forfeiture restrictions, by filing an election under Section
83(b) of the Code with the Internal Revenue Service (the "I.R.S.") within thirty
(30) days after the date of purchase of the Purchased Shares hereunder. If the
fair market value of the Purchased Shares at the date of purchase does not
exceed the Purchase Price paid (and thus no tax is payable), the election may
avoid potential adverse tax consequences in the future. The form for making
this election is attached as Exhibit B hereto. Purchaser understands that he is
required, as a condition precedent to the purchase of the Purchased Shares, to
execute and deliver this filing at the Closing. PURCHASER ACKNOWLEDGES THAT THE
CORPORATION IS REQUIRING THE PURCHASER TO FILE A TIMELY ELECTION UNDER SECTION
83(b) OF THE CODE, EVEN IF PURCHASER REQUESTS THE CORPORATION OR ITS
REPRESENTATIVES TO MAKE THIS FILING ON SUCH PURCHASER'S BEHALF.
3.3 Market Stand-Off.
----------------
(a) In connection with any underwritten public offering by the
Corporation of its equity securities pursuant to an effective registration
statement filed under the 1933 Act, including the Corporation's initial public
offering, Purchaser shall not sell, assign, make any short sale of, loan,
hypothecate, pledge, grant any option for the purchase of or otherwise dispose
or transfer for value or otherwise agree to engage in any of the foregoing
transactions with respect to any Purchased Shares without the prior written
consent of the Corporation or its lead underwriter a party to an underwriting
agreement between (or among) the Corporation and such underwriter(s) for such
period of time from and after the effective date of such registration statement
as may be requested by the Corporation or such underwriters; provided, however,
that in no event shall such period exceed one hundred eighty (180) days. This
Section 3.3 shall only remain in effect for the two (2) year period immediately
following the effective date of the Corporation's initial public offering and
shall thereafter terminate and cease to be in force or effect.
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<PAGE>
(b) In the event of any stock dividend, stock split,
recapitalization, or other change affecting the Corporation's outstanding Common
Stock effected without receipt of consideration, then any new, substituted, or
additional securities distributed with respect to the Purchased Shares shall be
immediately subject to the provisions of this Section 3.3, to the same extent
the Purchased Shares are at such time covered by such provisions.
3.4 Stop Transfer. In order to enforce the provisions of Section
-------------
3.3, the Corporation may impose stop-transfer instructions with respect to the
Purchased Shares until the end of the applicable stand-off period.
IV. TRANSFER RESTRICTIONS
---------------------
4.1 Restriction on Transfer. Purchaser, shall not transfer, assign,
-----------------------
encumber, or otherwise dispose of all or any part of the Purchased Shares that
are subject to the Corporation's Repurchase Right under Section 5.1(i) hereof,
except as set forth herein. In addition, from and after the termination of the
Repurchase Rights with respect to any Purchased Shares under Section 5.1 hereof,
such Purchased Shares shall not be transferred, assigned, encumbered, or
otherwise disposed of in contravention of the Corporation's First Refusal Right
under Article VI. Such restrictions on transfer, however, shall not be
applicable provided the Purchaser receives from the Corporation, its prior
written consent to (i) a gratuitous transfer of the Purchaser's Purchased Shares
made to his spouse or issue, including adopted children, or to a trust for the
exclusive benefit of the Purchaser or the Purchaser's spouse or issue, including
adopted children, (ii) a transfer of title to the Purchased Shares effected
pursuant to the Purchaser's will or the laws of intestate succession or (iii) a
pledge of the Purchased Shares to the Corporation as security for any purchase-
money indebtedness incurred by the Purchaser in connection with the acquisition
of the Purchased Shares.
4.2 Transferee Obligations. Each person (other than the Corporation)
----------------------
to whom the Purchased Shares are transferred by means of one of the permitted
transfers specified in Section 4.1 above must, as a condition precedent to the
validity of such transfer, agree in writing to the Corporation to be bound by
the terms and provisions of this Agreement and acknowledge that any Purchased
Shares which are transferred pursuant to Section 4.1 hereof shall be subject to
(i) both the Corporation's Repurchase Right pursuant to Article V hereof or
otherwise and the Corporation's First Refusal Right granted pursuant to Article
VI hereof, (ii) the restrictions on transfer contained in Section 5.1 with
respect to Unvested Shares (as defined below), and (iii)
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<PAGE>
the market stand-off provisions of Section 3.3 above, to the same extent as if
such shares continued to be owned by the Purchaser.
4.3 Definition of Owner. For purposes of Articles V, VI and VII of
-------------------
this Agreement, the term "Owner" shall include the Purchaser and all subsequent
holders of the Purchased Shares who own such Purchased Shares pursuant to a
permitted transfer from the Purchaser in accordance with Section 4.1 above or
who otherwise derive their ownership through a permitted transfer from a
Purchaser.
V. REPURCHASE RIGHT
5.1 Grant. The Corporation is hereby granted the right (the
-----
"Repurchase Right"), exercisable at any time during the sixty (60) day period
following the date the Purchaser ceases for any reason to be a Service Provider
(as defined below) to the Corporation to repurchase (i) at the Purchase Price
all or (at the discretion of the Corporation and with the consent of the
Purchaser) any portion of the Purchased Shares in which the Purchaser has not
acquired a vested interest in accordance with the vesting provisions of Section
5.3 (such shares to be hereinafter called the "Unvested Shares") and (ii) at the
Fair Market Value (as defined below) all or (at the discretion of the
Corporation and with the consent of the Purchaser) any portion of the Purchased
Shares in which the Purchaser has acquired a vested interest in accordance with
the vesting provisions of Section 5.3 (the "Vested Shares"). For purposes of
this Agreement, the Purchaser shall be deemed to be a "Service Provider" to the
Corporation for so long as the Purchaser renders periodic services to the
Corporation or one or more of its parent or subsidiary corporations, whether as
an employee, non-employee member of the board of directors, or an independent,
non-employee consultant.
5.2 Exercise of the Repurchase Right
--------------------------------
(a) The Repurchase Right shall be exercisable by written notice
delivered to the Owner of the Purchased Shares prior to the expiration of the
applicable sixty (60) day period specified in Section 5.1. The notice shall
indicate the number of Unvested Shares to be repurchased, the number of Vested
Shares to be repurchased and the date on which the repurchase is to be effected,
such date to be not more than thirty (30) days after the date of notice. To the
extent one or more certificates representing Purchased Shares may have been
previously delivered out of escrow to the Owner, then the Owner shall, prior to
the close of business on the date specified for the repurchase, deliver to the
Secretary of the Corporation the certificates representing the Purchased Shares
to be repurchased, each certificate to be properly endorsed for transfer. The
Corporation shall, concurrently with the receipt of such stock
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<PAGE>
certificates (either from escrow in accordance with Section 7.3 or from Owner as
herein provided), pay to Owner in cash or cash equivalents (including the
cancellation of any purchase-money indebtedness), an amount equal to (i) the
Purchase Price previously paid for the Unvested Shares which are to be purchased
and (ii) the Fair Market Value for the Vested Shares which are to be purchased.
(b) For purposes of this Agreement, the term "Fair Market
Value" shall mean, with respect to each Vested Share to be purchased pursuant to
the Repurchase Rights, the fair market value of each such Vested Share as most
recently determined by the Board of Directors of the Corporation or the Stock
Option Committee thereof (or any other committee) for purposes of valuing
incentive stock options of the Corporation's Common Stock granted to the
Purchaser or any other Service Provider or for any other reason.
5.3 Termination of the Repurchase Right.
-----------------------------------
(a) The Repurchase Right shall terminate with respect to any
Purchased Shares for which it is not timely exercised under Section 5.2. In
addition, the Repurchase Right provided in Section 5.1(i) shall terminate, and
cease to be exercisable, with respect to any and all Purchased Shares in which
the Purchaser vests in accordance with the schedule below. Accordingly, provided
the Purchaser continues to be a Service Provider to the Corporation, the
Purchaser shall acquire a vested interest in, and the Repurchase Right provided
in Section 5.1(i) shall lapse with respect to, the Purchased Shares in
accordance with the following provisions.
(i) The Purchaser shall not acquire any vested interest
in, nor shall the Repurchase Right provided in Section 5.1(i) lapse with respect
to, any Purchased Shares during the initial twelve (12) month period measured
from and after the date hereof (the "Vesting Measurement Date").
(ii) Upon the expiration of the initial twelve (12) month
period measured from the Vesting Measurement Date, the Purchaser shall acquire a
vested interest in, and the Repurchase Right provided in Section 5.1(i) shall
lapse with respect to, the remaining Purchased Shares in a series of successive
annual installments each equal to twenty-five percent (25%) of the number of
Purchased Shares issued by the Corporation to the Purchaser as of the date
hereof.
(b) All Purchased Shares as to which the Repurchase Right
provided in Section 5.1(i) lapses shall, however, continue to be subject to (i)
the Repurchase Right provided in Section 5.1(ii) above, (ii) the First Refusal
Right
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<PAGE>
of the Corporation and its assignees under Article VI hereof and (iii) the
market stand-off provisions of Section 3.3 above.
5.4 Additional Shares or Substituted Securities. In the event of any
-------------------------------------------
stock dividend, stock split, recapitalization or other change affecting the
Corporation's outstanding Common Stock as a class effected without receipt of
consideration, any new, substituted or additional securities or other property
(including money paid other than as a regular cash dividend) which is by reason
of any such transaction distributed with respect to the Purchased Shares shall
be immediately subject to the Repurchase Right, but only to the extent the
Purchased Shares are at the time covered by such right. Appropriate adjustments
to reflect the distribution of such securities or property shall be made to the
number of Purchased Shares hereunder and to the price per share to be paid upon
the exercise of the Repurchase Right in order to reflect the effect of any such
transaction upon the Corporation's capital structure; provided, however,, that
the aggregate Purchase Price shall remain the same.
5.5 Corporate Transaction.
---------------------
(a) In the event of any of the following transaction (a
"Corporate Transaction"):
(i) a merger or acquisition in which the Corporation is
not the surviving entity, except for a transaction the principal purpose of
which is to change the State in which the Corporation is incorporated,
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation, or
(iii) any reverse merger in which the Corporation is the
surviving entity but in which fifty percent (50%) or more of the Corporation's
outstanding voting stock is transferred to holders different from those who held
the stock immediately prior to such merger, then the Board of Directors of the
Corporation (as constituted immediately prior to the Corporate Transaction)
shall, in its sole and absolute discretion, determine whether the Repurchase
Right shall lapse, in which case the Purchaser shall acquire a vested interest
in all such Purchased Shares upon the consummation of such Corporate
Transaction, or whether the Purchased Shares shall remain subject to the
Repurchase Right pursuant to an assignment by the Corporation Transaction, in
which case the Purchased Shares shall vest in accordance with Section 5.3.
(b) To the extent the Repurchase Right remains in effect
following such Corporate Transaction in accordance with subparagraph (a) above,
it shall apply to the new capital stock or other property received in exchange
for the Purchased Shares
-8-
<PAGE>
in consummation of the Corporate Transaction, but only to the extent the
Purchased Shares in consummation of the Corporate Transaction, but only to the
extent the Purchased Shares are at the time covered by such right. Appropriate
adjustments shall be made to the price per share payable upon exercise of the
Repurchase Right to reflect the effect of the Corporate Transaction upon the
Corporation's capital structure; provided, however, that the aggregate Purchase
Price shall remain the same.
5.6 Legend. In addition to the legends required by Section 2.4
------
above, all certificates representing Purchased Shares subject to the
Corporation's Right of Repurchase shall be endorsed with the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED,
TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN
COMPLIANCE WITH THE TERMS OF A WRITTEN AGREEMENT BETWEEN THE
CORPORATION AND THE REGISTERED HOLDER OF THE SHARES (OR THE
PREDECESSOR IN INTEREST TO THE SHARES), SUCH AGREEMENT GRANTS CERTAIN
REPURCHASE RIGHTS TO THE COMPANY UPON TERMINATION OF THE REGISTERED
HOLDER'S SERVICES WITH THE COMPANY. THE SECRETARY OF THE COMPANY WILL
UPON WRITTEN REQUEST FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER
HEREOF WITHOUT CHARGE."
VI. RIGHT OF FIRST REFUSAL
6.1 Grant. The Corporation is hereby granted the right of first
-----
refusal (the "First RefuSal Right"), exercisable in connection with any proposed
sale or other transfer of all or any part of the Purchased Shares in which the
Purchaser has vested in accordance with the vesting provisions of Article V
hereof. For purposes of this Article VI, the term "transfer" shall include any
assignment, pledge, encumbrance or other disposition for value of the Purchased
Shares intended to be made by the Owner, but shall not include any of the
permitted transfers under Section 4.1 above.
6.2 Notice of Intended Disposition. In the event the Owner desires
------------------------------
to accept a bona fide third-party offer for any or all of the Purchased Shares
(the shares subject to such offer to be hereinafter called, solely for the
purposes of this Article VI, the "Target Shares"), Owner shall promptly (i)
deliver to the Secretary of the Corporation written notice (the "Disposition
Notice") of the offer and the basic terms and conditions thereof, including the
proposed purchase price thereof, and (ii) provide satisfactory proof that the
disposition of the Target Shares to the third party offeror would not be in
contravention of the provision set forth in Articles II and III of this
Agreement.
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<PAGE>
6.3 Exercise of Right. The Corporation (or its assignees) shall, for
-----------------
a period of thirty (30) days following receipt of the Disposition Notice, have
the right to repurchase any or all of the Target Shares specified in the
Disposition Notice upon substantially the same terms and conditions specified
therein. Such right shall be exercisable by written notice (the "Exercise
Notice") delivered to Owner prior to the expiration of the thirty (30) day
exercise period. If such right is exercised with respect to all the Target
Shares specified in the Disposition Notice, then the Corporation (or its
assignees) shall effect the repurchase of the Target Shares, including payment
of the purchase price, not more than ten (10) business days after delivery of
the Exercise Notice; and at such time Owner shall deliver to the Corporation the
certificates representing the Target Shares to be repurchased, each certificate
to be properly endorsed for transfer. To the extent any of the Target Shares
are at the time held in escrow under Article VII, the certificates for such
shares shall automatically be released from escrow and surrendered to the
Corporation for cancellation. The Target Shares so purchased shall thereupon be
cancelled and cease to be issued and outstanding shares of the Corporation's
Common Stock.
Should the purchase price specified in the Disposition Notice be
payable in property other than case or evidences of indebtedness, the
Corporation (or its assignees) shall have the right to pay the purchase price in
the form of cash equal in amount to the value of such property. If the Owner
and the Corporation (or its assignees) cannot agree on such cash value within
ten (10) days after the Corporation's receipt of the Disposition Notice, the
valuation shall be made by an appraiser of recognized standing selected by the
Owner and the Corporation (or its assignees), or, if they cannot agree on an
appraiser within twenty (20) days after the Corporation's receipt of the
Disposition Notice, each shall select an appraiser of recognized standing and
the two appraisers shall designate a third appraiser of recognized standing,
whose appraisal shall be determinative of such value. The cost of such
appraisal shall be shared equally by the Owner and the Corporation. The Closing
shall then be held on the latter of (i) the fifth (5th) business day following
delivery of the Exercise Notice or (ii) the fifteenth (15th) day after such cash
valuation shall have been made.
6.4 Non-Exercise of Right. In the event the Exercise Notice is not
---------------------
given to the Owner within thirty (30) days following the date of the
Corporation's receipt of the Disposition Notice, the Owner shall have a period
of thirty (30) days thereafter, in which to sell or otherwise dispose of the
Target Shares upon terms and conditions (including the purchase price) no more
favorable to third party purchaser than those specified in the Disposition
Notice; provided, however, that any such sale or disposition shall not be
effected in contravention
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<PAGE>
of the provisions of Article II of this Agreement. To the extent any of the
Target Shares are at the time held in escrow pursuant to Article VII below, the
certificates for such shares shall automatically be released from escrow and
surrendered to the Owner. The third party purchaser shall acquire the Target
Shares free and clear of all the terms and provisions of this Agreement
(including the Corporation's Repurchase Right under Article V and the
Corporation's First Refusal Right hereunder). In the event the Owner does not
sell or otherwise dispose of the Target Shares within the specified thirty (30)
day period, the Corporation's First Refusal Right shall continue to be
applicable to any subsequent disposition of the Target Shares by the Owner until
such right lapses in accordance with Section 6.7 below.
6.5 Partial Exercise of Right. In the event the Corporation (or its
-------------------------
assignees) makes a timely exercise of the First Refusal Right with respect to a
portion, but not all, of the Target Shares specified in the Disposition Notice,
the Owner shall have the option, exercisable by written notice to the
Corporation delivered within twenty (20) days after the date of the Disposition
Notice, to the effect the sale of the Target Shares pursuant to one of the
following alternatives.
(a) Sale or other disposition of all the Target Shares to a
third-party purchaser in compliance with the requirements of Section 6.4, as if
the Corporation did not exercise the First Refusal Right hereunder; or
(b) sale to the Corporation (or its assignees) of the portion
of the Target Shares which the Corporation (or its assignees) has elected to
purchase, such sale to be effected in substantial conformity with the provisions
of Section 6.3.
Failure of Owner to deliver timely notification to the Corporation
under this Section 6.5 shall be deemed to be an election by Owner to sell the
Target Shares pursuant to alternative (b) above.
6.6 Recapitalization.
----------------
(a) In the event of any stock dividend, stock split,
recapitalization or other transaction affecting the Corporation's outstanding
Common Stock as a class effected without receipt of consideration, then any new,
substituted or additional securities or other property which is by reason of
such transaction distributed with respect to the Purchased Shares shall be
immediately subject to the Corporation's First Refusal Right hereunder, but only
to the extent the Purchased Shares are at a time covered by such right.
(b) In the event of a Corporate Transaction (as defined in
Section 5.6 above), the Corporation's First Refusal
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<PAGE>
Right shall remain in full force and effect and shall apply to the new capital
stock or other property received in exchange for the Purchased Shares in
consummation of the Corporate Transaction, but only to the extent the Purchased
Shares are at the time covered by such right.
6.7 Termination. The First Refusal Right under this Article VI shall
-----------
terminate and cease to have effect upon the earlier to occur of (i) the first
date on which the shares of the Corporation's Common Stock are held of record by
more than five hundred (500) persons, or (ii) the closing of a firm commitment
underwritten public offering pursuant to an effective registration statement
under the 1933 Act, covering the offer and sale of the Corporation's Common
Stock in the aggregate amount of at least $10,000,000. However, the market
stand-off provisions of Section 3.3 above shall continue to remain in full force
and effect following the termination of the First Refusal Right hereunder.
6.8 Legend. All certificates representing Purchased Shares subject
------
to the Right of First Refusal shall be endorsed with the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED,
TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN
COMPLIANCE WITH THE TERMS OF A WRITTEN AGREEMENT BETWEEN THE
CORPORATION AND THE REGISTERED HOLDERS OF THE SHARES (OR THE
PREDECESSOR IN INTEREST TO THE SHARES). SUCH AGREEMENT GRANTS TO THE
CORPORATION CERTAIN RIGHTS OF FIRST REFUSAL UPON AN ATTEMPTED TRANSFER
OF THE SHARES. THE SECRETARY OF THE CORPORATION WILL UPON WRITTEN
REQUEST FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER HEREOF WITHOUT
CHARGE."
VII. ESCROW
7.1 Deposit. Upon issuance, the certificates for the Purchased
-------
Shares shall be deposited in escrow with the Secretary of the Corporation to be
held in accordance with the provisions of this Article VII. Each deposited
certificate shall be accompanied by a duly executed Assignment Separate from
Certificate in form of Exhibit A. The deposited certificates, together with any
other assets or securities from time to time deposited with the Corporation
pursuant to the requirements of this Agreement, shall remain in escrow until
such time or times as the certificates (or other assets and securities) are to
be released or otherwise surrendered for cancellation in accordance with Section
7.4 below. Upon delivery of the certificates (or other assets and securities)
to the Corporation, the Owner shall be issued an instrument of deposit
acknowledging the number of
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<PAGE>
Purchased Shares (or other assets and securities) delivered in escrow to the
Secretary of the Corporation.
7.2 Recapitalization. All regular cash dividends on the Purchased
----------------
Shares (or other securities at the time held in escrow) shall be paid directly
to the Owner and shall not be held in escrow. However, in the event of any
stock dividend, stock split, recapitalization or other change affecting the
Corporation's outstanding Common Stock as a class effected without receipt of
consideration or in the event of a Corporate Transaction, any new, substituted
or additional securities or other property which is by reason of such
transaction distributed with respect to the Purchased Shares shall be
immediately delivered to the Secretary of the Corporation to be held in escrow
under this Article VII, but only to the extent the Purchased Shares are at the
time subject to the escrow requirements of Section 7.1 above.
7.3 Release/Surrender. The Purchased Shares, together with any other
-----------------
assets or securities held in escrow hereunder, shall be subject to the following
terms and conditions relating to their release from escrow or their surrender to
the Corporation for repurchase and cancellation:
(a) Should the Corporation elect to exercise the Repurchase
Right under Article V hereof with respect to any Unvested Shares, then the
escrowed certificates for such Unvested Shares (together with any other assets
or securities issued with respect thereto) shall be delivered to the Corporation
for cancellation, concurrently with the payment to the Owner, in cash or cash
equivalent (including the cancellation of any purchase-money indebtedness), of
an amount equal to the aggregate Purchase Price for such Unvested Shares, and
the Owner shall cease to have any further rights or claims with respect to such
Unvested Shares (or other assets or securities).
(b) Should the Corporation elect to exercise its First Refusal
Right under Article VI with respect to any Target Shares held at the time in
escrow hereunder, then the escrowed certificates for such Target Shares
(together with any other assets or securities issued with respect thereto)
shall, concurrently with the payment of the purchase price for such Target
Shares to the Owner in accordance with Section 6.3 hereof, be surrendered to the
Corporation for cancellation, and the Owner shall cease to have any further
rights or claims with respect to such Target Shares (or other assets or
securities).
(c) Should the Corporation elect not to exercise its First
Refusal Right under Article VI hereof with respect to any Target Shares held at
the time in escrow hereunder, then the escrowed certificates for such Target
Shares (together with any other assets or securities issued with respect
thereto) shall be
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<PAGE>
surrendered to the Owner for disposition according to the provisions of Section
6.4 above.
(d) As the interest of the Owner in the Purchased Shares (or
any other assets or securities issued with respect thereto) vests in accordance
with the provisions of Article V hereof, the certificates for such vested shares
(as well as all other vested assets and securities) shall be released from
escrow and delivered to the Owner in accordance with the following schedule:
(i) the initial release of vested shares (or other
vested assets and securities) from escrow shall be effected within thirty (30)
days following the expiration of the initial twelve (12) month period measured
from the Vesting Measurement Date.
(ii) Subsequent releases of vested shares (or other
vested assets and securities) from escrow shall be effected at annual intervals
thereafter, with the first such subsequent annual release to occur twenty-four
(24) months after the Vesting Measurement Date.
(iii) Upon any earlier termination of the Corporation's
Repurchase Right in accordance with the applicable provisions of Article V
hereof, the Purchased Shares (or other assets or securities) at the time held in
escrow hereunder shall promptly be released to the Owner as fully vested shares
or other property.
(e) Notwithstanding anything to the contrary contained in this
Section 7.3, all Purchased Shares (or other assets or securities) released from
escrow in accordance with the provisions of Section 7.3(d) hereof shall
nevertheless remain subject to (i) the Corporation's First Refusal Right under
Article VI hereof until such right terminates pursuant to Section 6.7 above and
(ii) the market stand-off provisions of Section 3.3 above until such provisions
terminate in accordance therewith.
VIII. GENERAL PROVISIONS
8.1 Assignment. The Corporation may assign its Repurchase Rights
----------
under Article V and/or its First Refusal Right under Article VI to any person or
entity selected by the Corporation's Board of Directors, including (without
limitation) one or more stockholders of the Corporation.
8.2 No Employment or Service Contract. Nothing in this Agreement
---------------------------------
shall confer upon the Purchaser any right to continue in the service of the
Corporation (or any parent or subsidiary corporation of the Corporation
employing or retaining Purchaser) for any period of time or interfere with or
restrict
-14-
<PAGE>
in any way the rights of the Corporation (or any parent or subsidiary
corporation of the Corporation employing or retaining Purchaser) or the
Purchaser, which rights are hereby expressly reserved by each, to terminate the
Service Provider status of Purchaser at any time for any reason whatsoever, with
or without cause.
8.3 Notices. Any notice required in connection with (i) the
-------
Repurchase Right or the First Refusal Right or (ii) the disposition of any
Purchased Shares covered thereby shall be given in writing and shall be deemed
effective upon personal delivery or upon deposit in the United States mail,
registered or certified, postage prepaid and addressed to the party entitled to
such notice at the address indicated below such party's signature line on this
Agreement or at such other address as such party may designate by ten (10) days'
advance written notice under this Section 8.3 to all other parties to this
Agreement; provided, however, that in the case of any notice given by any party
to the Corporation, such notice shall not be deemed effective unless a copy of
such notice shall be provided, in the manner set forth above, to Finn Dixon &
Herling, One Landmark Square, 6th Floor, Stamford, Connecticut 06901, Attention;
Michael J. Herling, Esq.
8.4 No Waiver. The failure of the Corporation (or its assignees) in
---------
any instance to exercise the Repurchase Rights granted under Article V hereof,
or the failure of the Corporation (or its assignees) in any instance to exercise
the First Refusal Right granted under Article VI hereof, shall not constitute a
waiver of any other repurchase rights and/or rights of first refusal that may
subsequently arise under the provisions of this Agreement or any other agreement
between the Corporation and the Purchaser. No waiver of any breach or condition
of this Agreement shall be deemed to be a waiver of any other or subsequent
breach or condition, whether of like or different nature.
8.5 Cancellation of Shares. If the Corporation (or its assignees)
----------------------
shall make available, at the time and place and in the amount and form provided
in this Agreement, the consideration for the Purchased Shares to be purchased in
accordance with the First Refusal Right or repurchased in accordance with the
Repurchase Right, then from and after such time, the person from whom such
shares are to be repurchased shall no longer have any rights as a holder of such
shares (other than the right to receive payment of such consideration in
accordance with this Agreement), and such shares shall be deemed purchased in
accordance with the applicable provisions hereof and the Corporation (or its
assignees) shall be deemed the owner and holder of such shares, whether or not
the certificates therefor have been delivered as required by this Agreement.
-15-
<PAGE>
IX. MISCELLANEOUS PROVISIONS.
9.1 Purchaser Undertaking. Purchaser hereby agrees to take whatever
---------------------
additional action and execute whatever additional documents the Corporation may,
in its judgment, deem necessary or advisable in order to carry out or effect one
or more of the obligations or restrictions imposed on either the Purchaser or
the Purchased Shares pursuant to the express provisions of this Agreement.
9.2 Agreement Is Entire Contract. This Agreement constitutes the
----------------------------
entire contract between the parties hereto with regard to the subject matter
hereof. This Agreement is made pursuant to the provisions of the Corporation's
Executive Stock Purchase Plan and shall in all respects be construed in
conformity with the express terms and provisions of such Plan.
9.3 Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the laws of the State of Delaware, as such laws
are applied to contracts entered into and performed in such State.
9.4 Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed to be an original, but all of which, when taken
together, shall constitute one and the same instrument.
9.5 Successors and Assigns. The provisions of this Agreement shall
----------------------
inure to the benefit of, and be binding upon, the Corporation and its successors
and assigns and the Purchaser and the Purchaser's legal representatives, heirs,
legatees, distributees, assigns and transferees by operation of law, whether or
not any such person shall have become a party to this Agreement and have agreed
in writing to join herein and be bound by the terms and conditions hereof.
IN WITNESS WHEREOF, the Parties have executed this Agreement on the day and
year first indicated above.
VIROPHARMA, INC.
By: __________________________
Address: __________________________
__________________________
__________________________
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<PAGE>
PURCHASER/1/
By: __________________________
Address: __________________________
__________________________
__________________________
- -----------------------
/1/ I have received completed, executed and retained Code Section 83(b)
election that was attached hereto as Exhibit B. As set forth in Section 3.2
above, I understand that I, and not the Corporation, will be responsible
for completing the form and filing the election with the appropriate office
of the federal and state tax authorities and that if such filing is not
completed within thirty (30) days after the date of this Agreement, I will
forfeit the significant tax benefits afforded a purchaser of stock under
Section 83(b). I understand further that such filing should be made by
registered or certified mail, return receipt requested, and that I must
retain two (20) copies of the completed form for filing with my state and
federal tax returns for the current tax year and an additional copy for my
records.
-17-
<PAGE>
EXHIBIT A
Assignment Separate from Certificate
FOR VALUE RECEIVED ____________________ hereby sell, assign and
transfer unto VIROPHARMA, INC., a Delaware corporation (the "Corporation"),
_______ (_______) shares of the _______ Capital Stock of __________ standing in
__________ name on the books of said _________ represented by Certificate No.
_________ herewith and do hereby irrevocably constitute and appoint
_________________________ Attorney to transfer the said stock on the books of
the within named Corporation with full power of substitution in the premises.
Dated: ____________________
Signature: ________________________
Signature: ________________________
<PAGE>
EXHIBIT B
Repurchase Rights
This statement is being made under Section 83(b) of the Internal Revenue Code,
pursuant to Treas. Reg. Section 1.83-2.
(1) The person who performed the services is:
Name:
Address:
Taxpayer Ident. No.:
taxable Year: Calendar Year 19___.
(2) The property with respect to which the election is being made is
________ shares of the common stock of _______________.
(3) The property was issued on ____________________, 19__.
(4) The taxable year for which the election is being made is __________.
(5) The property is non-transferable and is subject to a repurchase right
pursuant to which the issuer has the right to acquire the property at the
original purchase price if for any reason stockholder's services which are
rendered for the benefit of the issuer are terminated. The issuer's repurchase
right lapses on the following dates:
______________ ______________ ______________ ______________
(6) The fair market value at the time of transfer (determined without
regard to any restriction other than a restriction which by its terms will never
lapse) is $__________ per share.
(7) The amount paid for such property is $__________ per share.
(8) A copy of this statement was furnished to __________, for whom Service
Provider rendered the service underlying the transfer of property.
(9) This statement is executed as of: _____________________
__________________________ __________________________________
Spouse (if any) Service Provider
<PAGE>
RESTRICTED STOCK PURCHASE AGREEMENT
This Agreement is made as of the 17th day of January, 1996, by and
between VIROPHARMA, INC., a Delaware corporation (the "Corporation"), and Frank
Baldino, Jr. (the Purchaser").
I. PURCHASE OF SHARES
1.1 Purchase. The Purchaser hereby purchases from the Corporation,
--------
and the Corporation hereby sells to the Purchase, 100,000 shares of the
Corporation's common stock, par value $0.001 per share (the "Purchased Shares")
at a purchase price equal to $0.05 per share (the "Purchase Price").
1.2 Payment. Concurrently with the execution of this Agreement, the
-------
Purchaser shall pay the Purchase Price for the Purchased Shares, in cash, cash
equivalent, or by delivery of a promissory note. Purchaser shall also deliver
to the Secretary of the Corporation a duly executed blank Assignment Separate
from Certificate (in the form attached hereto as Exhibit A) and whatever
additional documents may be required by the Corporation as a condition for the
purchase.
1.3 Delivery of Certificates. The certificates representing the
------------------------
Purchased Shares purchased hereunder and subject to the Corporation's Repurchase
Right under Article V hereof shall be held in escrow by the Secretary of the
Corporation as provided in Article VII hereof.
II. SECURITIES LAW COMPLIANCE
2.1 Exemption from Registration. The Purchased Shares have not been
---------------------------
registered under the Securities Act of 1933, as amended (the "1933 Act"), and
are being issued to Purchaser in reliance upon the exemption from such
registration provided by Section 4(2) of the 1933 Act.
2.2 Restricted Securities. Purchaser hereby confirms that Purchaser
---------------------
has been informed that the Purchased Shares are restricted securities under the
1933 Act and may not be resold or transferred unless the Purchased Shares are
first registered under the federal securities laws or unless an exemption from
such registration is available. Accordingly, Purchaser hereby acknowledges that
Purchaser is prepared to hold the Purchased Shares for an indefinite period and
that Purchaser is aware that Rule 144 of the Securities and Exchange Commission
(the "Commission") issued under the 1933 Act is not presently available to
exempt the offer and sale of the Purchased Shares from the registration
requirements of the 1933 Act. Purchaser is aware of the adoption of Rule 144
promulgated under the 1933 Act by the Commission, which permits limited public
resales of securities acquired in a nonpublic offering, subject to the
satisfaction of
- 1 -
<PAGE>
certain conditions. Purchaser understands that Rule 144 is conditioned upon,
among other things: (i) the availability of certain current public information
about the Corporation, (ii) the resale occurring not fewer than two (2) years
after the party has purchased and paid for the securities to be sold, (iii) the
sale being made through a broker in an unsolicited "broker's transaction", and
(iv) the amount of securities being sold during any three-month period not
exceeding specified limitations. Purchaser acknowledges and understands that
the Corporation may not be satisfying the current public information requirement
of Rule 144 at the time Purchaser wishes to sell the Purchased Shares or other
conditions under Rule 144 which are required of the Corporation. If so,
Purchaser understands that he will be precluded from selling the securities
under Rule 144 even if the two-year holding period of said Rule has been
satisfied. Prior to Purchaser's acquisition of the Purchased Shares, Purchaser
acquired sufficient information about the Corporation to reach an informed and
knowledgeable decision to acquire the Purchased Shares. Purchaser has such
knowledge and experience in financial and business matters so as to make him
capable of utilizing said information to evaluate the risks of the prospective
investment and to make an informed investment decision. Purchaser is able to
bear the economic risk of his investment in the Purchased Shares. Subject to
Section 3.3 hereof, Purchaser agrees not to make, without the prior written
consent of the Corporation, any public offering or sale of the Purchased Shares
although permitted to do so pursuant to Rule 144(k) promulgated under the 1933
Act, until the earlier of the date on which the Corporation effects its initial
registered public offering pursuant to the Securities Act or the date in which
it becomes a registered company pursuant to Section 12(g) of the Securities and
Exchange Act of 1934.
2.3 Disposition of Shares. Purchaser hereby agrees that Purchaser
---------------------
shall make no disposition of the Purchased Shares (other than a permitted
transfer under Section 4.1 hereof) unless and until:
(a) Purchaser shall have notified the Corporation of the proposed
disposition and provided a written summary of the terms and conditions of the
proposed disposition;
(b) Purchaser shall have complied with all requirements of this
Agreement applicable to the disposition of the Purchased Shares; and
(c) Purchaser shall have provided the Corporation with an opinion
of counsel, in form and substance satisfactory to the Corporation, that (i) the
proposed disposition does not require registration of the Purchased Shares under
the 1933 Act or (ii) all appropriate action necessary for compliance with the
registration requirements of the 1933 Act or of any exemption from registration
- 2 -
<PAGE>
available under the 1933 Act (including Rule 144 promulgated thereunder) has
been taken.
The Corporation shall not be required (i) transfer on its books any
Purchased Shares that have been sold or transferred in violation of the
provisions of this Article II or (ii) to treat as the owner of the Purchased
Shares, or otherwise to accord voting or dividend rights to, any transferee to
whom the Purchased Shares have been transferred in contravention of this
Agreement.
2.4 Restrictive Legends. In order to reflect the restrictions on
-------------------
disposition of the Purchased Shares, the stock certificates representing the
Purchased Shares will be endorsed with restrictive legends affixed thereto
including one or both of the following legends:
(a) "The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder. The shares may not be sold or offered for
sale in the absence of (i) an effective registration statement for the shares
under such Act, (ii) a 'no action' letter of the Securities and Exchange
Commission with respect to such sale or offer, or (iii) an opinion of counsel
satisfactory to the Corporation that registration under such Act is not required
with respect to such sale or offer."
(b) If required by the authorities of any state in connection
with the issuance of the Purchased Shares, the legend or legends required by
such state authorities shall also be endorsed on all such certificates.
III. SPECIAL PROVISIONS
3.1 Shareholder Rights. Until such time as the Corporation actually
------------------
exercises its repurchase rights under this Agreement, Purchaser (or any
successor in interest) shall have all the rights of a shareholder (including
voting and dividend rights) with respect to the Purchased Shares, including the
Purchased Shares held in escrow under Article VII, but subject, however, to the
transfer restrictions of Article IV.
3.2 Section 83(b) Election. Purchaser understands that under Section
----------------------
83 of the Internal Revenue Code of 1986, as amended, and the rules and
regulations promulgated thereunder (the "Code"), the difference between the
Purchase Price paid for the Purchased Shares and their fair market value on the
date on which any forfeiture restrictions applicable to such shares lapse will
be reportable as ordinary income at that time. For this purpose, the term
"forfeiture restrictions" includes the right of the Corporation to repurchase
the Purchased Shares pursuant to its restrictions on transferability and
Repurchase Right under Articles IV and V, respectively, of this Agreement.
Purchaser understands
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<PAGE>
that he shall, at the time of the execution and delivery of this Agreement, be
required to elect to be taxed at the time the Purchased Shares are acquired
hereunder to the extent the fair market value of the Purchased Shares exceeds
the Purchase Price rather than when and as such Purchased Shares cease to be
subject to such forfeiture restrictions, by filing an election under Section
83(b) of the Code with the Internal Revenue Service (the "I.R.S.") within thirty
(30) days after the date of purchase of the Purchased Shares hereunder. If the
fair market value of the Purchased Shares at the date of purchase does not
exceed the Purchase Price paid (and thus no tax is payable), the election may
avoid potential adverse tax consequences in the future. The form for making
this election is attached as Exhibit B hereto. Purchaser understands that he is
required, as a condition precedent to the purchase of the Purchased Shares, to
execute and deliver this filing at the Closing. PURCHASER ACKNOWLEDGES THAT THE
CORPORATION IS REQUIRING THE PURCHASER TO FILE A TIMELY ELECTION UNDER SECTION
83(b) OF THE CODE, EVEN IF PURCHASER REQUESTS THE CORPORATION OR ITS
REPRESENTATIVES TO MAKE THIS FILING ON SUCH PURCHASER'S BEHALF.
3.3 Market Stand-Off.
----------------
(a) In connection with any underwritten public offering by the
Corporation of its equity securities pursuant to an effective registration
statement filed under the 1933 Act, including the Corporation's initial public
offering, Purchaser shall not sell, assign, make any short sale of, loan,
hypothecate, pledge, grant any option for the purchase of or otherwise dispose
or transfer for value or otherwise agree to engage in any of the foregoing
transactions with respect to any Purchased Shares without the prior written
consent of the Corporation or its lead underwriter a party to an underwriting
agreement between (or among) the Corporation and such underwriter(s) for such
period of time from and after the effective date of such registration statement
as may be requested by the Corporation or such underwriters; provided, however,
that in no event shall such period exceed one hundred eighty (180) days. This
Section 3.3 shall only remain in effect for the two (2) year period immediately
following the effective date of the Corporation's initial public offering and
shall thereafter terminate and cease to be in force or effect.
(b) In the event of any stock dividend, stock split,
recapitalization, or other change affecting the Corporation's outstanding Common
Stock effected without receipt of consideration, then any new, substituted, or
additional securities distributed with respect to the Purchased Shares shall be
immediately subject to the provisions of this Section 3.3, to the same extent
the Purchased Shares are at such time covered by such provisions.
- 4 -
<PAGE>
3.4 Stop Transfer. In order to enforce the provisions of Section
-------------
3.3, the Corporation may impose stop-transfer instructions with respect to the
Purchased Shares until the end of the applicable stand-off period.
IV. TRANSFER RESTRICTIONS
---------------------
4.1 Restriction on Transfer. Purchaser, shall not transfer, assign,
-----------------------
encumber, or otherwise dispose of all or any part of the Purchased Shares that
are subject to the Corporation's Repurchase Right under Section 5.1(i) hereof,
except as set forth herein. In addition, from and after the termination of the
Repurchase Rights with respect to any Purchased Shares under Section 5.1 hereof,
such Purchased Shares shall not be transferred, assigned, encumbered, or
otherwise disposed of in contravention of the Corporation's First Refusal Right
under Article VI. Such restrictions on transfer, however, shall not be
applicable provided the Purchaser receives from the Corporation, its prior
written consent to (i) a gratuitous transfer of the Purchaser's Purchased Shares
made to his spouse or issue, including adopted children, or to a trust for the
exclusive benefit of the Purchaser or the Purchaser's spouse or issue, including
adopted children, (ii) a transfer of title to the Purchased Shares effected
pursuant to the Purchaser's will or the laws of intestate succession or (iii) a
pledge of the Purchased Shares to the Corporation as security for any purchase-
money indebtedness incurred by the Purchaser in connection with the acquisition
of the Purchased Shares.
4.2 Transferee Obligations. Each person (other than the Corporation)
----------------------
to whom the Purchased Shares are transferred by means of one of the permitted
transfers specified in Section 4.1 above must, as a condition precedent to the
validity of such transfer, agree in writing to the Corporation to be bound by
the terms and provisions of this Agreement and acknowledge that any Purchased
Shares which are transferred pursuant to Section 4.1 hereof shall be subject to
(i) both the Corporation's Repurchase Right pursuant to Article V hereof or
otherwise and the Corporation's First Refusal Right granted pursuant to Article
VI hereof, (ii) the restrictions on transfer contained in Section 5.1 with
respect to Unvested Shares (as defined below), and (iii) the market stand-off
provisions of Section 3.3 above, to the same extent as if such shares continued
to be owned by the Purchaser.
4.3 Definition of Owner. For purposes of Articles V, VI and VII of
-------------------
this Agreement, the term "Owner" shall include the Purchaser and all subsequent
holders of the Purchased Shares who own such Purchased Shares pursuant to a
permitted transfer from the Purchaser in accordance with Section 4.1 above or
who otherwise derive their ownership through a permitted transfer from a
Purchaser.
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<PAGE>
V. REPURCHASE RIGHT
5.1 Grant. The Corporation is hereby granted the right (the
-----
"Repurchase Right"), exercisable at any time during the sixty (60) day period
following the date the Purchaser ceases for any reason to be a Service Provider
(as defined below) to the Corporation to repurchase (i) at the Purchase Price
all or (at the discretion of the Corporation and with the consent of the
Purchaser) any portion of the Purchased Shares in which the Purchaser has not
acquired a vested interest in accordance with the vesting provisions of Section
5.3 (such shares to be hereinafter called the "Unvested Shares") and (ii) at the
Fair Market Value (as defined below) all or (at the discretion of the
Corporation and with the consent of the Purchaser) any portion of the Purchased
Shares in which the Purchaser has acquired a vested interest in accordance with
the vesting provisions of Section 5.3 (the "Vested Shares"). For purposes of
this Agreement, the Purchaser shall be deemed to be a "Service Provider" to the
Corporation for so long as the Purchaser renders periodic services to the
Corporation or one or more of its parent or subsidiary corporations, whether as
an employee, non-employee member of the board of directors, or an independent,
non-employee consultant.
5.2 Exercise of the Repurchase Right
--------------------------------
(a) The Repurchase Right shall be exercisable by written notice
delivered to the Owner of the Purchased Shares prior to the expiration of the
applicable sixty (60) day period specified in Section 5.1. The notice shall
indicate the number of Unvested Shares to be repurchased, the number of Vested
Shares to be repurchased and the date on which the repurchase is to be effected,
such date to be not more than thirty (30) days after the date of notice. To the
extent one or more certificates representing Purchased Shares may have been
previously delivered out of escrow to the Owner, then the Owner shall, prior to
the close of business on the date specified for the repurchase, deliver to the
Secretary of the Corporation the certificates representing the Purchased Shares
to be repurchased, each certificate to be properly endorsed for transfer. The
Corporation shall, concurrently with the receipt of such stock certificates
(either from escrow in accordance with Section 7.3 or from Owner as herein
provided), pay to Owner in cash or cash equivalents (including the cancellation
of any purchase-money indebtedness), an amount equal to (i) the Purchase Price
previously paid for the Unvested Shares which are to be purchased and (ii) the
Fair Market Value for the Vested Shares which are to be purchased.
(b) For purposes of this Agreement, the term "Fair Market Value"
shall mean, with respect to each Vested Share to be purchased pursuant to the
Repurchase Rights, the fair market value of each such Vested Share as most
recently determined by the Board of Directors of the Corporation or the Stock
Option Committee
- 6 -
<PAGE>
thereof (or any other committee) for purposes of valuing incentive stock options
of the Corporation's Common Stock granted to the Purchaser or any other Service
Provider or for any other reason.
5.3 Termination of the Repurchase Right.
-----------------------------------
(a) The Repurchase Right shall terminate with respect to any
Purchased Shares for which it is not timely exercised under Section 5.2. In
addition, the Repurchase Right provided in Section 5.1(i) shall terminate, and
cease to be exercisable, with respect to any and all Purchased Shares in which
the Purchaser vests in accordance with the schedule below. Accordingly, provided
the Purchaser continues to be a Service Provider to the Corporation, the
Purchaser shall acquire a vested interest in, and the Repurchase Right provided
in Section 5.1(i) shall lapse with respect to, the Purchased Shares in
accordance with the following provisions.
(i) As of the date hereof (the "Vesting Measurement Date"),
the Purchaser shall acquire a vested interest in, and there shall be no
Repurchase Right provided in Section 5.1(i) lapse with respect to, twenty-five
percent (25%) of Purchased Shares.
(ii) Upon the expiration of the initial twelve (12) month
period measured from the Vesting Measurement Date, the Purchaser shall acquire a
vested interest in, and the Repurchase Right provided in Section 5.1(i) shall
lapse with respect to, the remaining Purchased Shares in a series of successive
annual installments each equal to twenty-five percent (25%) of the number of
Purchased Shares issued by the Corporation to the Purchaser as of the date
hereof.
(b) All Purchased Shares as to which the Repurchase Right
provided in Section 5.1(i) lapses shall, however, continue to be subject to (i)
the Repurchase Right provided in Section 5.1(ii) above, (ii) the First Refusal
Right of the Corporation and its assignees under Article VI hereof and (iii) the
market stand-off provisions of Section 3.3 above.
5.4 Additional Shares or Substituted Securities. In the event of any
-------------------------------------------
stock dividend, stock split, recapitalization or other change affecting the
Corporation's outstanding Common Stock as a class effected without receipt of
consideration, any new, substituted or additional securities or other property
(including money paid other than as a regular cash dividend) which is by reason
of any such transaction distributed with respect to the Purchased Shares shall
be immediately subject to the Repurchase Right, but only to the extent the
Purchased Shares are at the time covered by such right. Appropriate adjustments
to reflect the distribution of such securities or property shall be made to the
number of Purchased Shares hereunder and to the price per share to
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<PAGE>
be paid upon the exercise of the Repurchase Right in order to reflect the effect
of any such transaction upon the Corporation's capital structure; provided,
however, that the aggregate Purchase Price shall remain the same.
5.5 Corporate Transaction.
---------------------
(a) In the event of any of the following transaction (a
"Corporate Transaction"):
(i) a merger or acquisition in which the Corporation is not
the surviving entity, except for a transaction the principal purpose of which is
to change the State in which the Corporation is incorporated,
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation, or
(iii) any reverse merger in which the Corporation is the
surviving entity but in which fifty percent (50%) or more of the Corporation's
outstanding voting stock is transferred to holders different from those who held
the stock immediately prior to such merger, then the Board of Directors of the
Corporation (as constituted immediately prior to the Corporate Transaction)
shall, in its sole and absolute discretion, determine whether the Repurchase
Right shall lapse, in which case the Purchaser shall acquire a vested interest
in all such Purchased Shares upon the consummation of such Corporate
Transaction, or whether the Purchased Shares shall remain subject to the
Repurchase Right pursuant to an assignment by the Corporation Transaction, in
which case the Purchased Shares shall vest in accordance with Section 5.3.
(b) To the extent the Repurchase Right remains in effect
following such Corporate Transaction in accordance with subparagraph (a) above,
it shall apply to the new capital stock or other property received in exchange
for the Purchased Shares in consummation of the Corporate Transaction, but only
to the extent the Purchased Shares in consummation of the Corporate Transaction,
but only to the extent the Purchased Shares are at the time covered by such
right. Appropriate adjustments shall be made to the price per share payable upon
exercise of the Repurchase Right to reflect the effect of the Corporate
Transaction upon the Corporation's capital structure; provided, however, that
the aggregate Purchase Price shall remain the same.
5.6 Legend. In addition to the legends required by Section 2.4
------
above, all certificates representing Purchased Shares subject to the
Corporation's Right of Repurchase shall be endorsed with the following legend:
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<PAGE>
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED,
TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN
COMPLIANCE WITH THE TERMS OF A WRITTEN AGREEMENT BETWEEN THE
CORPORATION AND THE REGISTERED HOLDER OF THE SHARES (OR THE
PREDECESSOR IN INTEREST TO THE SHARES), SUCH AGREEMENT GRANTS CERTAIN
REPURCHASE RIGHTS TO THE COMPANY UPON TERMINATION OF THE REGISTERED
HOLDER'S SERVICES WITH THE COMPANY. THE SECRETARY OF THE COMPANY WILL
UPON WRITTEN REQUEST FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER
HEREOF WITHOUT CHARGE."
VI. RIGHT OF FIRST REFUSAL
6.1 Grant. The Corporation is hereby granted the right of first
-----
refusal (the "First RefuSal Right"), exercisable in connection with any proposed
sale or other transfer of all or any part of the Purchased Shares in which the
Purchaser has vested in accordance with the vesting provisions of Article V
hereof. For purposes of this Article VI, the term "transfer" shall include any
assignment, pledge, encumbrance or other disposition for value of the Purchased
Shares intended to be made by the Owner, but shall not include any of the
permitted transfers under Section 4.1 above.
6.2 Notice of Intended Disposition. In the event the Owner desires
------------------------------
to accept a bona fide third-party offer for any or all of the Purchased Shares
(the shares subject to such offer to be hereinafter called, solely for the
purposes of this Article VI, the "Target Shares"), Owner shall promptly (i)
deliver to the Secretary of the Corporation written notice (the "Disposition
Notice") of the offer and the basic terms and conditions thereof, including the
proposed purchase price thereof, and (ii) provide satisfactory proof that the
disposition of the Target Shares to the third party offeror would not be in
contravention of the provision set forth in Articles II and III of this
Agreement.
6.3 Exercise of Right. The Corporation (or its assignees) shall, for
-----------------
a period of thirty (30) days following receipt of the Disposition Notice, have
the right to repurchase any or all of the Target Shares specified in the
Disposition Notice upon substantially the same terms and conditions specified
therein. Such right shall be exercisable by written notice (the "Exercise
Notice") delivered to Owner prior to the expiration of the thirty (30) day
exercise period. If such right is exercised with respect to all the Target
Shares specified in the Disposition Notice, then the Corporation (or its
assignees) shall effect the repurchase of the Target Shares, including payment
of the purchase price, not more than ten (10) business days after delivery of
the Exercise Notice; and at such time Owner shall deliver to the Corporation the
certificates representing the Target Shares to be repurchased, each certificate
to be properly endorsed for transfer. To the extent
- 9 -
<PAGE>
any of the Target Shares are at the time held in escrow under Article VII, the
certificates for such shares shall automatically be released from escrow and
surrendered to the Corporation for cancellation. The Target Shares so purchased
shall thereupon be cancelled and cease to be issued and outstanding shares of
the Corporation's Common Stock.
Should the purchase price specified in the Disposition Notice be
payable in property other than case or evidences of indebtedness, the
Corporation (or its assignees) shall have the right to pay the purchase price in
the form of cash equal in amount to the value of such property. If the Owner
and the Corporation (or its assignees) cannot agree on such cash value within
ten (10) days after the Corporation's receipt of the Disposition Notice, the
valuation shall be made by an appraiser of recognized standing selected by the
Owner and the Corporation (or its assignees), or, if they cannot agree on an
appraiser within twenty (20) days after the Corporation's receipt of the
Disposition Notice, each shall select an appraiser of recognized standing and
the two appraisers shall designate a third appraiser of recognized standing,
whose appraisal shall be determinative of such value. The cost of such
appraisal shall be shared equally by the Owner and the Corporation. The Closing
shall then be held on the latter of (i) the fifth (5th) business day following
delivery of the Exercise Notice or (ii) the fifteenth (15th) day after such cash
valuation shall have been made.
6.4 Non-Exercise of Right. In the event the Exercise Notice is not
---------------------
given to the Owner within thirty (30) days following the date of the
Corporation's receipt of the Disposition Notice, the Owner shall have a period
of thirty (30) days thereafter, in which to sell or otherwise dispose of the
Target Shares upon terms and conditions (including the purchase price) no more
favorable to third party purchaser than those specified in the Disposition
Notice; provided, however, that any such sale or disposition shall not be
effected in contravention of the provisions of Article II of this Agreement. To
the extent any of the Target Shares are at the time held in escrow pursuant to
Article VII below, the certificates for such shares shall automatically be
released from escrow and surrendered to the Owner. The third party purchaser
shall acquire the Target Shares free and clear of all the terms and provisions
of this Agreement (including the Corporation's Repurchase Right under Article V
and the Corporation's First Refusal Right hereunder). In the event the Owner
does not sell or otherwise dispose of the Target Shares within the specified
thirty (30) day period, the Corporation's First Refusal Right shall continue to
be applicable to any subsequent disposition of the Target Shares by the Owner
until such right lapses in accordance with Section 6.7 below.
6.5 Partial Exercise of Right. In the event the Corporation (or its
-------------------------
assignees) makes a timely exercise of the First Refusal Right with respect to a
portion, but not all, of the Target
- 10 -
<PAGE>
Shares specified in the Disposition Notice, the Owner shall have the option,
exercisable by written notice to the Corporation delivered within twenty (20)
days after the date of the Disposition Notice, to the effect the sale of the
Target Shares pursuant to one of the following alternatives.
(a) Sale or other disposition of all the Target Shares to a
third-party purchaser in compliance with the requirements of Section 6.4, as if
the Corporation did not exercise the First Refusal Right hereunder; or
(b) sale to the Corporation (or its assignees) of the portion of
the Target Shares which the Corporation (or its assignees) has elected to
purchase, such sale to be effected in substantial conformity with the provisions
of Section 6.3.
Failure of Owner to deliver timely notification to the Corporation
under this Section 6.5 shall be deemed to be an election by Owner to sell the
Target Shares pursuant to alternative (b) above.
6.6 Recapitalization.
----------------
(a) In the event of any stock dividend, stock split,
recapitalization or other transaction affecting the Corporation's outstanding
Common Stock as a class effected without receipt of consideration, then any new,
substituted or additional securities or other property which is by reason of
such transaction distributed with respect to the Purchased Shares shall be
immediately subject to the Corporation's First Refusal Right hereunder, but only
to the extent the Purchased Shares are at a time covered by such right.
(b) In the event of a Corporate Transaction (as defined in
Section 5.6 above), the Corporation's First Refusal Right shall remain in full
force and effect and shall apply to the new capital stock or other property
received in exchange for the Purchased Shares in consummation of the Corporate
Transaction, but only to the extent the Purchased Shares are at the time covered
by such right.
6.7 Termination. The First Refusal Right under this Article VI shall
-----------
terminate and cease to have effect upon the earlier to occur of (i) the first
date on which the shares of the Corporation's Common Stock are held of record by
more than five hundred (500) persons, or (ii) the closing of a firm commitment
underwritten public offering pursuant to an effective registration statement
under the 1933 Act, covering the offer and sale of the Corporation's Common
Stock in the aggregate amount of at least $10,000,000. However, the market
stand-off provisions of Section 3.3 above shall continue to remain in full force
and effect following the termination of the First Refusal Right hereunder.
- 11 -
<PAGE>
6.8 Legend. All certificates representing Purchased Shares subject
------
to the Right of First Refusal shall be endorsed with the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED,
TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN
COMPLIANCE WITH THE TERMS OF A WRITTEN AGREEMENT BETWEEN THE
CORPORATION AND THE REGISTERED HOLDERS OF THE SHARES (OR THE
PREDECESSOR IN INTEREST TO THE SHARES). SUCH AGREEMENT GRANTS TO THE
CORPORATION CERTAIN RIGHTS OF FIRST REFUSAL UPON AN ATTEMPTED TRANSFER
OF THE SHARES. THE SECRETARY OF THE CORPORATION WILL UPON WRITTEN
REQUEST FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER HEREOF WITHOUT
CHARGE."
VII. ESCROW
7.1 Deposit. Upon issuance, the certificates for the Purchased
-------
Shares shall be deposited in escrow with the Secretary of the Corporation to be
held in accordance with the provisions of this Article VII. Each deposited
certificate shall be accompanied by a duly executed Assignment Separate from
Certificate in form of Exhibit A. The deposited certificates, together with any
other assets or securities from time to time deposited with the Corporation
pursuant to the requirements of this Agreement, shall remain in escrow until
such time or times as the certificates (or other assets and securities) are to
be released or otherwise surrendered for cancellation in accordance with Section
7.4 below. Upon delivery of the certificates (or other assets and securities)
to the Corporation, the Owner shall be issued an instrument of deposit
acknowledging the number of Purchased Shares (or other assets and securities)
delivered in escrow to the Secretary of the Corporation.
7.2 Recapitalization. All regular cash dividends on the Purchased
----------------
Shares (or other securities at the time held in escrow) shall be paid directly
to the Owner and shall not be held in escrow. However, in the event of any
stock dividend, stock split, recapitalization or other change affecting the
Corporation's outstanding Common Stock as a class effected without receipt of
consideration or in the event of a Corporate Transaction, any new, substituted
or additional securities or other property which is by reason of such
transaction distributed with respect to the Purchased Shares shall be
immediately delivered to the Secretary of the Corporation to be held in escrow
under this Article VII, but only to the extent the Purchased Shares are at the
time subject to the escrow requirements of Section 7.1 above.
7.3 Release/Surrender. The Purchased Shares, together with any other
-----------------
assets or securities held in escrow hereunder, shall
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<PAGE>
be subject to the following terms and conditions relating to their release from
escrow or their surrender to the Corporation for repurchase and cancellation:
(a) Should the Corporation elect to exercise the Repurchase Right
under Article V hereof with respect to any Unvested Shares, then the escrowed
certificates for such Unvested Shares (together with any other assets or
securities issued with respect thereto) shall be delivered to the Corporation
for cancellation, concurrently with the payment to the Owner, in cash or cash
equivalent (including the cancellation of any purchase-money indebtedness), of
an amount equal to the aggregate Purchase Price for such Unvested Shares, and
the Owner shall cease to have any further rights or claims with respect to such
Unvested Shares (or other assets or securities).
(b) Should the Corporation elect to exercise its First Refusal
Right under Article VI with respect to any Target Shares held at the time in
escrow hereunder, then the escrowed certificates for such Target Shares
(together with any other assets or securities issued with respect thereto)
shall, concurrently with the payment of the purchase price for such Target
Shares to the Owner in accordance with Section 6.3 hereof, be surrendered to the
Corporation for cancellation, and the Owner shall cease to have any further
rights or claims with respect to such Target Shares (or other assets or
securities).
(c) Should the Corporation elect not to exercise its First
Refusal Right under Article VI hereof with respect to any Target Shares held at
the time in escrow hereunder, then the escrowed certificates for such Target
Shares (together with any other assets or securities issued with respect
thereto) shall be surrendered to the Owner for disposition according to the
provisions of Section 6.4 above.
(d) As the interest of the Owner in the Purchased Shares (or any
other assets or securities issued with respect thereto) vests in accordance with
the provisions of Article V hereof, the certificates for such vested shares (as
well as all other vested assets and securities) shall be released from escrow
and delivered to the Owner in accordance with the following schedule:
(i) the initial release of vested shares (or other vested
assets and securities) from escrow shall be effected within thirty (30) days
following the expiration of the initial twelve (12) month period measured from
the Vesting Measurement Date.
(ii) Subsequent releases of vested shares (or other vested
assets and securities) from escrow shall be effected at annual intervals
thereafter, with the first such subsequent
- 13 -
<PAGE>
annual release to occur twenty-four (24) months after the Vesting Measurement
Date.
(iii) Upon any earlier termination of the Corporation's
Repurchase Right in accordance with the applicable provisions of Article V
hereof, the Purchased Shares (or other assets or securities) at the time held in
escrow hereunder shall promptly be released to the Owner as fully vested shares
or other property.
(e) Notwithstanding anything to the contrary contained in this
Section 7.3, all Purchased Shares (or other assets or securities) released from
escrow in accordance with the provisions of Section 7.3(d) hereof shall
nevertheless remain subject to (i) the Corporation's First Refusal Right under
Article VI hereof until such right terminates pursuant to Section 6.7 above and
(ii) the market stand-off provisions of Section 3.3 above until such provisions
terminate in accordance therewith.
VIII. GENERAL PROVISIONS
8.1 Assignment. The Corporation may assign its Repurchase Rights
----------
under Article V and/or its First Refusal Right under Article VI to any person or
entity selected by the Corporation's Board of Directors, including (without
limitation) one or more stockholders of the Corporation.
8.2 No Employment or Service Contract. Nothing in this Agreement
---------------------------------
shall confer upon the Purchaser any right to continue in the service of the
Corporation (or any parent or subsidiary corporation of the Corporation
employing or retaining Purchaser) for any period of time or interfere with or
restrict in any way the rights of the Corporation (or any parent or subsidiary
corporation of the Corporation employing or retaining Purchaser) or the
Purchaser, which rights are hereby expressly reserved by each, to terminate the
Service Provider status of Purchaser at any time for any reason whatsoever, with
or without cause.
8.3 Notices. Any notice required in connection with (i) the
-------
Repurchase Right or the First Refusal Right or (ii) the disposition of any
Purchased Shares covered thereby shall be given in writing and shall be deemed
effective upon personal delivery or upon deposit in the United States mail,
registered or certified, postage prepaid and addressed to the party entitled to
such notice at the address indicated below such party's signature line on this
Agreement or at such other address as such party may designate by ten (10) days'
advance written notice under this Section 8.3 to all other parties to this
Agreement; provided, however, that in the case of any notice given by any party
to the Corporation, such notice shall not be deemed effective unless a copy of
such notice shall be provided, in the manner set forth above, to Morgan Lewis
- 14 -
<PAGE>
& Bockius, 2000 One Logan Square, Philadelphia, PA 19103, Attention: David R.
King, Esq.
8.4 No Waiver. The failure of the Corporation (or its assignees) in
---------
any instance to exercise the Repurchase Rights granted under Article V hereof,
or the failure of the Corporation (or its assignees) in any instance to exercise
the First Refusal Right granted under Article VI hereof, shall not constitute a
waiver of any other repurchase rights and/or rights of first refusal that may
subsequently arise under the provisions of this Agreement or any other agreement
between the Corporation and the Purchaser. No waiver of any breach or condition
of this Agreement shall be deemed to be a waiver of any other or subsequent
breach or condition, whether of like or different nature.
8.5 Cancellation of Shares. If the Corporation (or its assignees)
----------------------
shall make available, at the time and place and in the amount and form provided
in this Agreement, the consideration for the Purchased Shares to be purchased in
accordance with the First Refusal Right or repurchased in accordance with the
Repurchase Right, then from and after such time, the person from whom such
shares are to be repurchased shall no longer have any rights as a holder of such
shares (other than the right to receive payment of such consideration in
accordance with this Agreement), and such shares shall be deemed purchased in
accordance with the applicable provisions hereof and the Corporation (or its
assignees) shall be deemed the owner and holder of such shares, whether or not
the certificates therefor have been delivered as required by this Agreement.
IX. MISCELLANEOUS PROVISIONS.
9.1 Purchaser Undertaking. Purchaser hereby agrees to take whatever
---------------------
additional action and execute whatever additional documents the Corporation may,
in its judgment, deem necessary or advisable in order to carry out or effect one
or more of the obligations or restrictions imposed on either the Purchaser or
the Purchased Shares pursuant to the express provisions of this Agreement.
9.2 Agreement Is Entire Contract. This Agreement constitutes the
----------------------------
entire contract between the parties hereto with regard to the subject matter
hereof. This Agreement is made pursuant to the provisions of the Corporation's
Executive Stock Purchase Plan and shall in all respects be construed in
conformity with the express terms and provisions of such Plan.
9.3 Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the laws of the State of Delaware, as such laws
are applied to contracts entered into and performed in such State.
- 15 -
<PAGE>
9.4 Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed to be an original, but all of which, when taken
together, shall constitute one and the same instrument.
9.5 Successors and Assigns. The provisions of this Agreement shall
----------------------
inure to the benefit of, and be binding upon, the Corporation and its successors
and assigns and the Purchaser and the Purchaser's legal representatives, heirs,
legatees, distributees, assigns and transferees by operation of law, whether or
not any such person shall have become a party to this Agreement and have agreed
in writing to join herein and be bound by the terms and conditions hereof.
IN WITNESS WHEREOF, the Parties have executed this Agreement on the day and
year first indicated above.
VIROPHARMA, INC.
By: _______________________________
Claude Nash, President
Address: 76 Great Valley Parkway
Malvern, PA 19355
__________________________________/1/
Frank Baldino, Jr.
Address: __________________________
__________________________
- --------------------------
/1/ I have received completed, executed and retained Code Section 83(b)
election that was attached hereto as Exhibit B. As set forth in Section
3.2 above, I understand that I, and not the Corporation, will be
responsible for completing the form and filing the election with the
appropriate office of the federal and state tax authorities and that if
such filing is not completed within thirty (30) days after the date of
this Agreement, I will forfeit the significant tax benefits afforded a
purchaser of stock under Section 83(b). I understand further that such
filing should be made by registered or certified mail, return receipt
requested, and that I must retain two (20) copies of the completed form
for filing with my state and federal tax returns for the current tax year
and an additional copy for my records.
- 16 -
<PAGE>
EXHIBIT A
Assignment Separate from Certificate
FOR VALUE RECEIVED ____________________ hereby sell, assign and
transfer unto VIROPHARMA, INC., a Delaware corporation (the "Corporation"),
_______ (_______) shares of the _______ Capital Stock of __________ standing in
__________ name on the books of said _________ represented by Certificate No.
_________ herewith and do hereby irrevocably constitute and appoint
_________________________ Attorney to transfer the said stock on the books of
the within named Corporation with full power of substitution in the premises.
Dated: ____________________
Signature: ________________________
<PAGE>
EXHIBIT B
Repurchase Rights
This statement is being made under Section 83(b) of the Internal Revenue Code,
pursuant to Treas. Reg. Section 1.83-2.
(1) The person who performed the services is:
Name:
Address:
Taxpayer Ident. No.:
taxable Year: Calendar Year 19___.
(2) The property with respect to which the election is being made is
________ shares of the common stock of _______________.
(3) The property was issued on ____________________, 19__.
(4) The taxable year for which the election is being made is __________.
(5) The property is non-transferable and is subject to a repurchase right
pursuant to which the issuer has the right to acquire the property at the
original purchase price if for any reason stockholder's services which are
rendered for the benefit of the issuer are terminated. The issuer's repurchase
right lapses on the following dates:
______________ ______________ ______________ ______________
(6) The fair market value at the time of transfer (determined without
regard to any restriction other than a restriction which by its terms will never
lapse) is $__________ per share.
(7) The amount paid for such property is $__________ per share.
(8) A copy of this statement was furnished to __________, for whom Service
Provider rendered the service underlying the transfer of property.
(9) This statement is executed as of: _____________________
_______________________________ __________________________________
Spouse (if any) Service Provider
<PAGE>
Form of Resolution to be adopted at Board Meeting
RESOLVED, that, in recognition of Frank Baldino's serving as a
Director of the Company, and to provide him with rights comparable to those of
the other directors of the Company, the appropriate officers of the Company are
hereby authorized and directed to execute and deliver to Frank Baldino, Jr., on
behalf of the Company and in its name, an Employee Stock Purchase Agreement,
substantially in the form presented to the directors, with such changes as such
officers may approve, such approval to be conclusively evidenced by such
execution.
RESOLVED, that the officers of the Company are hereby authorized and
directed to take all action necessary or appropriate to carry out the purposes
of the foregoing resolution and perform the Agreement authorized therein,
including without limitation the issuance to Frank Baldino, Jr. of 100,000
shares of the common stock of the Company on the terms and conditions set forth
in such Agreement.
<PAGE>
================================================================================
VIROPHARMA, INC.
SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
June 16, 1995
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1 AUTHORIZATION AND SALE OF THE SHARES............................. 1
1.1 Authorization.................................................... 1
1.2 Sale of the Securities........................................... 1
SECTION 2 CLOSING DATE; DELIVERY........................................... 1
2.1 First Closing.................................................... 1
2.2 Second Closing................................................... 1
2.3 Delivery......................................................... 2
SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................... 2
3.1 Organization and Standing........................................ 2
3.2 Certificate of Incorporation and Bylaws.......................... 2
3.3 Corporate Power.................................................. 2
3.4 Subsidiaries..................................................... 2
3.5 Capitalization................................................... 3
3.6 Authorization.................................................... 3
3.7 Financial Statements............................................. 4
3.8 Title to Properties and Assets................................... 4
3.9 Related-Party Transactions....................................... 4
3.10 Permits.......................................................... 5
3.11 Liabilities...................................................... 5
3.12 Intellectual Property............................................ 5
3.13 Material Contracts............................................... 6
3.14 Compliance with Other Instruments................................ 6
3.15 Litigation....................................................... 6
3.16 Registration Rights.............................................. 6
3.17 Governmental Consent............................................. 7
3.18 Employees........................................................ 7
3.19 Inventions and Non-Disclosure Agreements......................... 7
3.20 Tax Returns, Payments, and Elections............................. 7
3.21 Environmental and Safety Laws.................................... 7
3.22 Brokers or Finders............................................... 7
3.23 Small Business Stock Qualification............................... 8
3.24 U.S. Real Property Holding Corporation........................... 8
3.25 ERISA............................................................ 8
3.26 Federal Reserve Regulations...................................... 9
3.27 Disclosure....................................................... 9
3.28 Securities Act................................................... 9
3.29 Insurance........................................................ 9
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SECTION 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS................. 9
4.1 Experience....................................................... 9
4.2 Investment....................................................... 9
4.3 Rule 144......................................................... 10
4.5 Access to Data................................................... 10
4.6 Authorization.................................................... 10
4.7 Brokers or Finders............................................... 10
4.8 Accredited Investor.............................................. 10
SECTION 5 CONDITIONS TO THE FIRST CLOSING OF THE PURCHASERS................ 11
5.1 Representations and Warranties................................... 11
5.2 Covenants........................................................ 11
5.3 Compliance Certificate........................................... 11
5.4 Blue Sky Law..................................................... 11
5.5 Restated Certificate............................................. 11
5.6 Reservation of Stock............................................. 11
5.7 Proceedings and Documents........................................ 11
5.8 Board of Directors............................................... 11
5.9 Opinion of Counsel............................................... 12
5.10 No Litigation.................................................... 12
5.11 Voting Agreement................................................. 12
5.12 Investors' Rights Agreement...................................... 12
5.13 Sanofi Agreement................................................. 12
5.14 Founders' Agreements............................................. 12
5.15 Series B Bridge Notes............................................ 12
5.16 Series A Bridge Notes............................................ 12
5.17 Minimum Investment............................................... 13
5.18 Indemnification Agreement........................................ 13
SECTION 6 CONDITIONS TO FIRST CLOSING OF THE COMPANY....................... 13
6.1 Representations and Warranties................................... 13
6.2 Blue Sky Law..................................................... 13
6.3 Minimum Investment............................................... 13
6.4 Conversion of the Series B Notes................................. 13
SECTION 7 CONDITIONS TO SECOND CLOSING OF THE PURCHASERS................... 13
7.1 Occurrence of First Closing...................................... 13
7.2 No Material Adverse Change....................................... 13
7.3 Proceedings and Documents........................................ 13
7.4 Compliance Certificate........................................... 14
7.5 Opinion of Company's Counsel..................................... 14
SECTION 8 CONDITIONS TO SECOND CLOSING OF THE COMPANY...................... 14
8.1 Occurrence of First Closing...................................... 14
8.2 Representations and Warranties................................... 14
8.3 Performance...................................................... 14
SECTION 9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION................................................. 14
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
9.1 Survival of Representations and Warranties....................... 14
9.2 Indemnification by the Company................................... 15
SECTION 10 GENERAL PROVISIONS.............................................. 15
10.1 Governing Law.................................................... 15
10.2 Successors and Assigns; Third Party Beneficiaries................ 15
10.3 Entire Agreement; Amendment and Waiver........................... 15
10.4 Notices, etc..................................................... 15
</TABLE>
<PAGE>
VIROPHARMA, INC.
SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
This agreement (this "Agreement") is made effective as of June 16, 1995
among VIROPHARMA, INC., a Delaware corporation (the "Company") and each of the
entities set forth on the "Schedule of Purchasers" attached hereto as Schedule A
(the "Purchasers").
SECTION 1
AUTHORIZATION AND SALE OF THE SHARES
------------------------------------
1.1 Authorization. The Company will have authorized before the "First
-------------
Closing" (as defined below) the sale and issuance of up to 7,219,994 shares of
Series B Convertible Preferred Stock, par value $0.001 per share (the "Series B
Shares"), having the rights, preferences, privileges and restrictions as set
forth in the Company's Amended and Restated Certificate of Incorporation (the
"Restated Certificate") attached hereto as Exhibit A.
The "Conversion Stock" means the shares of the Company's common stock, par
value $0.001 per share. issued or issuable upon conversion of the Series B
Shares.
1.2 Sale of the Securities. Subject to the terms and conditions hereof,
----------------------
the Company shall sell and issue to each Purchaser, and each Purchaser shall
purchase from the Company, severally but not jointly, the Series B Shares
specified opposite such Purchaser's name on the Schedule of Purchasers at the
purchase price per share set forth on such schedule. The Company's agreement
with each of the Purchasers is a separate agreement and the sale of Series B
Shares to each of the Purchasers is a separate sale.
SECTION 2
CLOSING DATE; DELIVERY
----------------------
2.1 First Closing. The purchase and sale of the Series B Shares
-------------
hereunder shall take place at two (2) closings as hereinafter set forth (each
closing, being sometimes hereinafter referred to individually as a "Closing" and
collectively as the "Closings"). The first closing (the "First Closing") of the
purchase and sale of the Series B Shares hereunder shall take place by facsimile
transmission or, executed copies of the documents and stock certificates
contemplated hereby delivered on the date of the
<PAGE>
First Closing at the law offices of Finn Dixon & Herlin, One Landmark Square,
Stamford, Connecticut 06901 at 10:00 a.m. on Friday, June 16, 1995 and confirmed
by overnight delivery of originally executed copies of all such documents and
stock certificates or at such other place and time upon which the Company and a
majority in interest of the Purchasers acquiring Series B Shares at the First
Closing shall agree as evidenced by the completion of the First Closing. At the
First Closing, the Purchasers shall purchase and the Company shall issue and
sell 3,560,000 Series B Shares having an aggregate purchase price equal to
$3,560,000. The date of the First Closing is hereinafter referred to as the
"First Closing Date."
2.2 Second Closing. The second closing (the "Second Closing") of the
--------------
purchase and sale of the Series B Shares hereunder shall take place by facsimile
transmission of executed copies of the documents and stock certificates
contemplated hereby delivered on the date of the First Closing at the law
offices of Finn Dixon & Herling, One Landmark Square, Stamford, Connecticut
06901, at 10:00 a.m. on Monday, October 2. 1995 (assuming satisfaction or waiver
of the conditions to the Purchasers' obligations to consummate the Second
Closing), and confirmed by overnight delivery of originally executed copies of
such documents and stock certificates or at such other place and time as the
Board of Directors of the Company shall determine. At the Second Closing, the
Purchasers shall purchase and the Company shall issue and sell 3,500,000 Series
B Shares for an aggregate consideration equal to $3,500,000. The date of the
Second Closing is hereinafter referred to as the "Second Closing Date."
2.3 Delivery. At each Closing, the Company shall deliver to each
--------
Purchaser the appropriate certificate(s) representing that number of Series B
Shares designated for each Closing and set forth opposite such Purchaser's name
in the Schedule of Purchasers, which shall be delivered against payment of the
purchase price therefor in the amount specified in the Schedule of Purchasers,
by (i) delivery to the Company of a check payable to the Company, (ii) wire
transfer, (iii) delivery to the Company for cancellation promissory notes issued
by the Company in the amount of such sum, or (iv) some combination thereof.
Notwithstanding the foregoing, the Purchasers shall be required to deliver to
the Company, the Series A Note and all Series B Notes which shall be held by any
Purchaser and the surrender of the Series B Notes shall offset each Purchaser's
respective purchase price for its Series B Shares by an amount equal to the
outstanding principal amount of any such note so surrendered.
SECTION 3
-2-
<PAGE>
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
The Company hereby represents and warrants to each Purchaser that, except
as set forth on the Schedule of Exceptions attached hereto as Exhibit B,
specifically identifying the relevant subparagraph(s) hereof. which exceptions
shall be deemed to be representations and warranties as if made hereunder:
3.1 Organization and Standing. The Company is a corporation duly
-------------------------
organized and validly existing under the laws of the State of Delaware and is in
good standing under such laws. The Company has all requisite corporate power
and authority to own and operate its properties and assets, and to carry on its
business as presently conducted and as proposed to be conducted by the Company.
The Company is qualified to do business as a foreign corporation in the
Commonwealth of Pennsylvania and there exists no other jurisdiction in which the
failure to be so qualified could have a material adverse effect upon the
business, properties, prospects or financial condition of the Company.
3.2 Certificate of Incorporation and Bylaws. The Company has made
---------------------------------------
available to counsel for the Purchasers true, correct, and complete copies of
the Company's certificate of incorporation, as amended, and the Company's
bylaws, as amended.
3.3 Corporate Power. The Company has all requisite corporate power and
---------------
authority to execute and deliver this Agreement and the Ancillary Agreements (as
defined below), to sell and issue the Series B Shares hereunder, to issue the
Conversion Stock, and to carry out and perform its obligations under the terms
of this Agreement, the Restated Certificate and each of the Ancillary
Agreements.
3.4 Subsidiaries. The Company has no subsidiaries and does not otherwise
------------
own or control directly, or indirectly any other person, corporation,
association, or business entity. The Company is not a participant in any joint
venture, partnership, or similar arrangement.
3.5 Capitalization. The authorized capital stock of the Company will,
--------------
upon the filing of the Restated Certificate, consist of 23,105,000 shares,
(i) 12,790,000 of which are designated Common Stock, par value $0.001 per share
(the "Common Stock"), and (ii) 10,315,000 of which are designated Preferred
Stock, par value $0.001 per share (the "Preferred Stock"), 675,000 shares of
which are designated "Series A Preferred Stock" (the "Series A Shares"), and
7,219,994 shares of which are designated "Series B Preferred Stock." All
1,625,000 shares of the Company's Common Stock which are issued and outstanding
are subject to vesting restrictions
-3-
<PAGE>
imposed pursuant to Employee Stock Purchase Agreements and except for 325,000
shares of Common Stock held of record by Scheer Company, Inc. Of the Company's
authorized but unissued shares of Common Stock, 350,000 shares are reserved for
issuance upon conversion of issued and outstanding Series A Shares, (as defined
below), and 7,219,994 shares of which are reserved for issuance upon conversion
of the Series A Shares issuable upon conversion of the Series A Notes (as
defined below), and 159,994 Series B Shares are reserved for issuance upon
conversion of Series B Shares. 159,994 Series B Shares are reserved for
issuance upon exercise of Warrants (the "Warrants") to purchase Series B Shares
previously issued to certain of the Purchasers and the Company's Chief Executive
Officer. All such issued and outstanding shares of the Company's capital stock
have been duly authorized and validly issued, are fully paid and nonassessable,
and were issued in compliance with all applicable federal and state securities
laws. The relative rights, privileges, and preferences of the Series A Shares,
Series B Shares and Common Stock will be as stated in the Restated Certificate.
Except for (i) that certain 8.5% Series A Convertible Demand Promissory Note
(the "Series A Note"), dated December 29, 1994, in the original principal amount
of $162,500. from the Company to Scheer & Company, Inc., and assigned to Oak
Investment Partners VI, Limited Partnership ("Oak") and others from time to
time, (ii) each of those certain 9.5% Series B Convertible Demand Promissory
Notes, each dated March 3, 1995 and each in the original principal amounts of
$100,000, $100,000, $100,000 and $30,000, from the Company to each of Oak Sevin
Rosen Fund IV, L.P. ("Sevin Rosen"), Technology Leaders, L.P. ("Technology
Leaders") and Claude Nash, respectively, (iii) each of those certain 9.5%
Convertible Demand Promissory Notes, each dated May 12, 1995, and each in the
original principal amount of $50,000, from the Company to each of Oak. Sevin
Rosen and Technology Leaders (each such note referred to in clauses (ii) and
(iii) of this Section 3.5 being sometimes hereinafter referred to individually
as a "Series B Note" and collectively, as the "Series B Notes"), (iv) the issued
and outstanding Series A Shares, (v) the Options to purchase 100,000 shares of
Common Stock issued to Frank Balding, (vi) options granted to the persons listed
on Section 3.5 of the Schedule of Exceptions to purchase the number of shares of
Common Stock set forth opposite each such person's name, and (vii) the Warrants,
there are no options, warrants, conversion privileges, or preemptive or other
rights or agreements presently outstanding to purchase or otherwise acquire any
authorized but unissued shares of the capital stock or other securities of the
Company. The Company is not a party or subject to any agreement or
understanding, and, to the best of the Company's knowledge, except as
contemplated hereby, and by the Ancillary Agreements, there is no agreement or
understanding between any person that affects or relates to the voting or giving
of written consents with respect to any security
-4-
<PAGE>
or the voting by a director of the Company. The legal and beneficial ownership
of the Company's issued and outstanding equity securities immediately, prior to
the First Closing are set forth on Exhibit C, attached hereto.
3.6 Authorization. All corporate action on the part of the Company, its
-------------
officers, directors, and its stockholders necessary for the authorization,
execution, delivery, and performance of this Agreement, the Restated
Certificate, the Investors' Rights Agreement, to be dated as of the First
Closing date, by and among the Company, the Purchasers and the Founders (as
defined therein), substantially in the form of Exhibit D hereto (the "Investors'
Rights Agreement), the Shareholders' Voting Agreement, to be dated as of the
First Closing Date, among the Company and the Purchasers, substantially in the
form of Exhibit E hereto (the "Shareholders' Voting Agreement") and all other
agreements executed in connection with the transactions contemplated hereby (the
Investors' Rights Agreement, the Restated Certificate, the Shareholders' Voting
Agreement and such other agreements contemplated hereby being sometimes
hereinafter referred to individually as an "Ancillary Agreement" and
collectively as the "Ancillary Agreements") by the Company, the authorization,
sale, issuance and delivery of the Series B Shares at the Closing and upon
exercise of the Warrants, the authorization and reservation of the Conversion
Stock, and the performance of all of the Company's obligations hereunder and
thereunder have been taken or will be taken prior to the First Closing. This
Agreement and each of the Ancillary Agreements, when executed and delivered by
the Company, will constitute a valid and legally binding obligation of the
Company, enforceable in accordance with its terms, subject to (i) laws of
general application relating to bankruptcy, insolvency, and the relief of
debtors, and (ii) rules of law governing specific performance, injunctive
relief, or other equitable remedies. The Company has reserved (i) 675,000
shares of Common Stock for issuance upon conversion of the Series A Shares, and
(ii) 7,219,994 shares of Common Stock for issuance upon conversion of the Series
B Shares. The Series B Shares, when issued in accordance with this Agreement,
will be duly authorized, validly issued, fully paid, and nonassessable, and will
have the rights, preferences, privileges, and restrictions as set forth in the
Restated Certificate. The Conversion Stock has been duly and validly reserved
and, when issued upon conversion of the Series B Shares in accordance with the
Restated Certificate, will be duly authorized, validly issued, fully paid, and
nonassessable. The Series B Shares and the Conversion Stock, when issued, will
be free of any liens, claims, encumbrances or restrictions on transfer;
provided, however, that the Series B Shares will be subject to (i) restrictions
- -------- -------
on transfer under federal and state securities laws and (ii) certain other
restrictions contained in the Investors' Rights Agreement.
-5-
<PAGE>
3.7 Financial Statements. The unaudited balance sheets of the Company as
--------------------
at December 31, 1994 (the "Balance Sheet Date") and the related unaudited
statements of operations, statements of stockholders' equity and statements of
cash flows for the fiscal year ended December 31, 1995, certified by the Chief
Executive Officer or Chief Financial Officer of the Company, copies of which
have heretofore been furnished to the Purchasers are true, correct and complete
in all material respects and present fairly the financial position of the
Company as at such date, and the results of operations and cash flows for such
period then ended. The unaudited balance sheets of the Company as at
March 31, 1995 and the related unaudited statements of operations, statements of
stockholders' equity and statements of cash flows for the three-month period
ended on such date, certified by the Chief Executive Officer or Chief Financial
Officer of the Company, copies of which have heretofore been furnished to the
Purchasers are true, correct and complete in all material respects and present
fairly the financial position of the Company as at such date, and the results of
operations and cash flows for such period then ended. Except as set forth on
Section 3.7 of the Schedule of Exceptions, all such financial statements have
been prepared in accordance with generally accepted accounting principles
applied consistently throughout the periods involved. Since March 31, 1995,
there has been no change, and no development or event involving a prospective
change, which has had or could be reasonably be expected to have, a material
adverse effect on the business, operations, property, condition (financial or
otherwise) or prospects of the Company.
3.8 Title to Properties and Assets. Except as set forth in Section 3.8
------------------------------
of the Schedule of Exceptions, the Company has good and marketable title to all
of its owned real property (including fixtures), good, valid and legal title to
ail its personal properties and assets, and has good title to ail its leasehold
interests, in each case subject to no mortgage, pledge, lien, lease, conditional
sale agreement, security interest, encumbrance, or charge, other than (i) liens
for current taxes not yet due and payable, and (ii) possible minor liens and
encumbrances which have arisen in the ordinary course of business and which do
not, in any one case or in the aggregate, materially detract from the value of
the property subject thereto or materially impair the operations of the Company.
3.9 Related-Party Transactions. No employee, officer, director or
--------------------------
consultant of the Company or member of his or her immediate family is indebted
to the Company, and, other than the Series A Note initially held by Scheer &
Company, Inc. and now held in part by Oak and in part by Oak VI Affiliates Fund,
Limited Partnership ("Affiliates VI") and the Series B Note held by Claude Nash,
the Company is not indebted (or committed to make loans or
-6-
<PAGE>
extend or guarantee credit) to any of them. No employee, officer, director or
consultant of the Company or member of his or her immediate family has any
direct or indirect ownership interest in any firm or corporation with which the
Company is affiliated or with which the Company has a business relationship, or
any firm or corporation that competes with the Company, except stock ownership
by employees, officers, or directors of the Company and members of their
immediate families in publicly traded companies that may compete with the
Company. No officer or director or any member of their immediate families
directly or indirectly, interested in any material contract with the Company.
3.10 Permits. The Company has all franchises, permits, licenses,
-------
authorizations, approvals, and any similar authority necessary for the conduct
of its business as now being conducted by it, the lack of which could,
individually or in the aggregate, materially and adversely affect the business,
properties, financial condition, or operating results of the Company and
believes it can obtain, without undue burden or expense, any similar authority
for the conduct of its business as planned by the Company to be conducted or as
may otherwise have been contemplated by the Company's business plan, copies of
which were previously delivered to the Purchasers. The Company is not in
violation of, or default in any material respect under, any such franchises,
permits, licenses, authorizations, approvals, or other similar authority.
3.11 Liabilities. Except as set forth in Section 3.11 of the Schedule of
-----------
Exceptions, and except for the Series A Note and the Series B Notes, the Company
has no indebtedness for borrowed money that the Company has directly or
indirectly created, incurred, assumed, or guaranteed, or with respect to which
the Company has otherwise become directly or indirectly liable. Except as
aforesaid, the Company has no liabilities or obligations, absolute or
contingent, which are, individually or in the aggregate, material to the
business, properties, financial condition or operating results of the Company,
except obligations under contracts made in the ordinary course of business that
would not be required to be reflected in financial statements prepared in
accordance with generally accepted accounting principles.
3.12 Intellectual Property. The Company does not own or possess, and is
---------------------
not licensed with respect to any "Intellectual Property" (as defined below in
this Section 3.12) other than as set forth in Section 3,12 of the Schedule of
Exceptions. The Company owns or possesses sufficient legal rights to all
Intellectual Property necessary for its business as presently conducted and as
proposed to be conducted without any conflict with, or infringement of, the
rights of others. Section 3.12 of the Schedule of Exceptions contains a
complete list of all of the intellectual
-7-
<PAGE>
property rights of the Company or used in the business of the Company, and
except as set forth therein, there are no outstanding options, licenses, or
agreements of any kind with respect to the foregoing Intellectual Property, nor
is the Company bond by or a party to any options, licenses, or agreements of any
kind with respect to the Intellectual Property or any other person or entity.
No shareholder, director, officer or employee or the Company or any other person
or entity other than the Company has any interest in ant of the Company's
Intellectual Property, which has not been waived, or in any inventions, profits,
royalties or other property arising therefrom. The Company has not received any
communications alleging that the Company has violated or, by conducting its
business as proposed, would violate any Intellectual Property rights of any
other person or entity. None of the Company's employees is obligated under any
contract (including licenses, covenants, or commitments of any nature) or other
agreement, or subject to any judgment, decree, or order or any court or
administrative agency, that would interfere with the use of such employee's best
efforts to promote the interests of the Company or that would conflict with the
Company's business as proposed to be conducted. None of the execution or
delivery of this Agreement or any Ancillary Agreement, or the carrying on of the
Company's business by the employees of the Company, or the conduct of the
Company's business as proposed, will conflict with or result in a breach of the
terms, conditions, or provisions of, or constitute a default under, any
contract, covenant, or instrument under which any of such employees is now
obligated. It is not currently necessary, and the Company currently believes
that in the future it will not be necessary, to use any inventions of any of its
employees (or persons it currently intends to hire) made prior to their
employment by the Company. Except as set forth on Schedule 3.12 of the Schedule
of Exceptions, all of the Company's Intellectual Property is owned by the
Company, free and clear of all liens and encumbrances. Any and all patents,
patent applications, copyrights, copyright applications, trademarks and
trademark applications relating to the Company's Intellectual Property is owned
by the Company and held in the Company's name. As used in this Agreement the
term "Intellectual Property" means all intellectual property rights and other
intangible property rights (other than standard license agreements and other
related rights acquired by the Company or under which the Company is the
licensee in connection with the Company's use of administrative, ministerial,
accounting and financial office automation software and related products)
including, without limitation, patents, patent applications, patent rights,
trademarks, trademark applications, trade names, fictitious or assumed names,
service marks, service mark applications, copyrights, copyright applications,
software, know-how, certificates of public convenience and necessity,
franchises, licenses, inventions, trade
-8-
<PAGE>
secrets, proprietary processes, formulae and computer programs, software and
displays.
3.13 Material Contracts. All contracts, agreements, and instruments,
------------------
(a) involving amounts of $10.000 or more in any one case, (b) which could,
individually or in the aggregate, have a material effect on the Company (or its
business, assets, properties, financial condition, operations or operating
results), or (c) which relate to the Company's Intellectual Property and to
which the Company is a party, are legal, valid, binding, and in full force and
effect, and, to the Company's knowledge, are enforceable by the Company in
accordance with their respective terms, subject to (i) laws of general
application relating to bankruptcy, insolvency and the relief of debtors,
(ii) rules of law governing specific performance, injunctive relief or other
equitable remedies, and (iii) actions or omission of parties other than the
Company; provided, however, that the Company has no knowledge of any such
-------- -------
actions or omissions. True and complete copies of such contracts, agreements,
and instruments have been provided to the Purchasers. Section 3.13 of the
Schedule of Exceptions lists all such contracts, agreements and instruments.
The Company has not granted rights to manufacture, produce, assemble, license,
market, or sell its products to any other person and is not bound by any
agreement that affects the Company's exclusive right to develop, manufacture,
assemble, distribute, market, or sell its products.
3.14 Compliance with Other Instruments. The Company is not in violation
---------------------------------
of any term of its certificate of incorporation or by-laws (each as amended
through the date hereof), or of any material term or provision of any mortgage,
indebtedness, indenture, contract, agreement, instrument, judgement, or decree,
and is not in violation of any order, statute, rule, or regulation
(collectively, "Laws") applicable to the Company. The execution, delivery, and
performance of, and compliance with this Agreement and the Ancillary Agreements,
the issuance of the Series B Shares, and the consummation of the transactions
contemplated hereby and thereby, have not resulted and will not result in any
violation of, or conflict with, or constitute, with or without the passage of
time or giving of notice or both, a default under, any such term or provision or
law or result in the creation of any mortgage, pledge, line, encumbrance, or
charge upon any of the properties or assets of the Company or the suspension,
revocation, impairment, forfeiture, or non-renewal of any material franchise,
permit, license, authorization, or approval applicable to the Company. There is
no such term or provision or Law which materially and adversely affects the
business of the Company or any of its properties or assets.
-9-
<PAGE>
3.15 Litigation. There are no actions, suits, proceedings, or
----------
investigations pending or, to the Company's knowledge, threatened against the
Company or its properties before any court or Governmental agency (nor, to the
Company's knowledge, is there any basis therefor). The foregoing includes,
without limitation, any action, suit, proceeding, or investigation pending or
currently threatened against the Company involving the prior employment of any
of the Company's employees, their use in connection with the Company's business
of any information or techniques allegedly proprietary to any of their former
employers, their obligations under any agreements with prior employers, or
negotiations by the Company with potential backers of, or investors in, the
Company or its proposed business. The Company is not a party to, or to the
Company's knowledge, named in any order, writ, injunction, judgment, or decree
of any court, government agency, or instrumentality. There is no action, suit
or proceeding by the Company currently pending or that the Company currently
intends to initiate.
3.16 Registration Rights. Except as set forth in the investors' Rights
-------------------
Agreement, the Company is not under any obligation to register (as defined in
the Investors' Rights Agreement) any of its presently outstanding securities or
any of its securities which may hereafter be issued.
3.17 Governmental Consent. No consent, approval, or authorization of, or
--------------------
designation, declaration, notification, or filing with any governmental
authority on the part of the Company is required in connection with the valid
execution and delivery of this Agreement or any of the Ancillary Agreements, the
offer, sale, or issuance of the Series B Shares, the issuance of the Conversion
Stock upon exercise thereof, or the consummation of any other transaction
contemplated hereby, except the (i) filing of the Restated Certificate with the
Delaware Secretary of the State, (ii) filing of a Notice of Limited Offering
Exemption on Form D under the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder (the "Securities Act") with the
Securities and Exchange Commission or any other federal agency at the time
administering the Securities Act (the "Commission"), and (iii) qualification (or
the taking of such action as may be necessary to secure an exemption from
qualification, if available) of the offer and sale of the Series B Shares under
applicable blue sky laws of the States of Connecticut, Pennsylvania and Texas,
which filings and qualifications, if required, will be accomplished in a timely
manner: provided, however, that solely with respect to federal and state "blue
-------- -------
sky" securities laws, the representations and warranties provided in the Section
3.17 shall be subject to the accuracy of the representations of the Purchasers
set forth in Section 4 hereof.
-10-
<PAGE>
3.18 Employees. No employee of the Company is or will be in violation of
---------
any judgment, decree, or order, or any term of any employment contract, patent
disclosure agreement, or other contract or agreement relating to the
relationship of any such employee with the Company, or any other party because
of the nature of the business conducted or to be conducted by, the Company or
the use by the employee of his best efforts with respect to such business.
Except as set forth in Section 3.18 of the Schedule of Exceptions, the Company
is not a party to or bound by, any currently effective employment contract,
deferred compensation agreement, bonus plan, incentive plan, profit sharing
plan, retirement agreement, or other employee compensation agreement. No
officer or key employee, or any group of key employees, intends to terminate his
or their employment with the Company nor does the Company have a present
intention to terminate the employment of any of the foregoing. Subject to
general principles related to wrongful termination of employees, the employment
of each officer and employee of the Company is terminable at the will of the
Company.
3.19 Inventions and Non-Disclosure Agreements. Each employee and officer
----------------------------------------
of the Company has executed an Inventions and Non-Disclosure Agreement
substantially in the form or forms which have been delivered to special counsel
for the Purchasers.
3.20 Tax Returns, Payments, and Elections. The Company has filed all tax
------------------------------------
returns and reports as required by law. These returns and reports are true and
correct in all material respects. The Company has paid all taxes and other
assessments due, except those contested by it in good faith. The Company has
not elected pursuant to the Internal Revenue Code of 1986, as amended ("Code"),
to be treated an S corporation or as a collapsible corporation pursuant to
Section 1362(a) or Section 341(f) of the Code, nor has it made any other
elections pursuant to the Code (other than elections that relate solely to
methods of accounting, depreciation, or amortization) that would have a material
effect on the business, properties, prospects, or financial condition of the
Company. The Company has withheld or collected from each payment made to each
of its employees, the amount of all taxes, Federal Insurance Unemployment Tax
Act taxes required to be withheld or collected therefrom, and has paid the same
to the proper tax receiving officers or authorized depositories.
3.21 Environmental and Safety Laws. The Company is not in violation of
-----------------------------
any applicable statute, law, or regulation relating to the environment or
occupational health and safety, and to its knowledge, no material expenditures
are or will be required in order to comply with any such existing statute, law,
or regulation.
3.22 Brokers or Finders. Except as set forth in Section
------------------
-11-
<PAGE>
3.21 of the Schedule of Exceptions, the Company has not incurred, and will not
incur, directly or indirectly, as a result of any action taken by the Company,
any liability for brokerage or finders' fees or agents' commissions or any
similar charges in connection with this Agreement or any transaction
contemplated hereby.
3.23 Small Business Stock Qualification. Subject to the continued
----------------------------------
satisfaction after the First Closing Date of the requirements of Sections
1202(c)(2) and (3) of the Code, (i) upon issuance on each Closing Date, the
Series B Shares will be "qualified small business stock" within the meaning of
Section 1202 of the Code; and (ii) as of the First Closing Date, the Company
will not have made, directly or indirectly, any redemption described in Section
1202(c)(3) of the Code.
3.24 U.S. Real Property Holding Corporation. The Company is not now and
--------------------------------------
has never been a "United States real property holding corporation," as defined
in Section 897(c)(2) of the Code and Section 1.897-2(b) of the Regulations
promulgated by the Internal Revenue Service, and the Company has filed with the
Internal Revenue Service ail statements, if any, with its United States income
tax returns which are required under Section 1.897-2(h) of such Regulations.
3.25 ERISA. Except as listed in Section 3.25 of the Schedule of
-----
Exceptions, neither the Company nor any entity required to be aggregated with
the Company under Sections 414(b), (c), (m), (n) or (o) of the Code sponsors,
maintains, has any obligation to contribute to, has any liability under, or is
otherwise a party to, any Benefit Plan. For purposes of this Agreement,
"Benefit Plan" shall mean any plan, fund, program, policy, arrangement or
contract whether formal or informal, which is in the nature of (i) an employee
pension benefit plan (as defined in Section 3(2) of ERISA) or (ii) an employee
welfare benefit plan (as defined in Section 3(1) of ERISA). With respect to
each Benefit Plan listed in Section 3.25 of the Schedule of Exceptions, to the
extent applicable:
(a) Each such Benefit Plan has been maintained and operated in all
material respects in compliance with its terms and with all applicable
provisions of ERISA, the Code and all regulations, rulings and other authority
issued thereunder;
(b) All contributions required by law to have been made under each
such Benefit Plan (without regard to any waivers granted under Section 412 of
the Code) to any fund or trust established thereunder or in connection therewith
have been made by the due date thereof;
-12-
<PAGE>
(c) Each such Benefit Plan intended to qualify under Section 401(a)
of the Code is the subject of a favorable unrevoked determination letter issued
by the Internal Revenue Service as to its qualified status under the Code, which
determination letter may still be relied upon as to such tax qualified status,
and no circumstances have occurred that would adversely affect the tax qualified
status of any such Benefit Plan;
(d) The actuarial present value of all accrued benefits under each
such Benefit Plan subject to Title IV of ERISA did not, as of the latest
valuation date of such Benefit Plan, exceed the then current value of the assets
of such Benefit Plan allocable to such accrued benefits, all as based upon the
actuarial assumptions and methods currently used for such Benefit Plan:
(e) None of such Benefit Plans that are "employee welfare benefit
plans" as defined in Section 3(1) of ERISA provides for continuing benefits or
coverage for any participant or beneficiary of a participant after such
participant's termination of employment, except as required by Sections 601
through 608 of ERISA;
(f) Neither the Company nor any trade or business (whether or not
incorporated) under common control with the Company within the meaning of
Section 4001 of ERISA has, or at any time has had, any obligation to contribute
to any "multiemployer plan" as defined in Section 3(37) of ERISA; and
(g) If any such Benefit Plan is not subject to ERISA and covers any
non-United States employee or former employee of the Company, then according to
the actuarial assumptions and valuations most recently used for the purpose of
funding each such plan (or, if the same has no such assumptions and valuations
or is unfunded, then according to the actuarial assumptions and valuations in
use by the Pension Benefit Guaranty Corporation), the total amount or value of
the funds available under each such plan to pay benefits accrued thereunder or
segregated in respect of such accrued benefits, together with any reserve or
accrual with respect thereto, exceeds the present value of all benefits (actual
or contingent) accrued as of such date of all participants and past participants
therein who are employees or former employees of the Company.
3.26 Federal Reserve Regulations. The Company is not engaged in the
---------------------------
business of extending credit for the purpose of purchasing or carrying margin
securities (within the meaning of Regulation G of the Board of Governors of the
Federal Reserve System), and no part of the proceeds of the Series B Shares will
be
-13-
<PAGE>
used to purchase or carry any margin security or to extend credit to others for
the purpose of purchasing or carrying any margin security or in any other manner
which would involve a violation of any of the regulations of the Board of
Governors of the Federal Reserve System.
3.27 Disclosure. No representation or warranty of the Company contained
----------
in this Agreement, the other Ancillary Agreements, in the Schedule of
Exceptions, in the exhibits attached hereto or in any written statement or
certificate furnished or to be furnished to the Purchasers pursuant hereto or in
connection with the transactions contemplated hereby, when read together,
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained herein or therein not
misleading in light of the circumstances under which they were made.
3.28 Securities Act. Subject to the accuracy of the Purchasers'
--------------
representations in Section 4 and in written responses to the Company's
inquiries, the offer, sale, and issuance of the Series B Shares in conformity
with the terms of this Agreement constitute transactions exempt from the
registration requirements of Section 5 of the Securities Act.
3.29 Insurance. The Company has in full force and effect fire and
---------
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed, and such other policies of insurance, and in
such amounts as in the Company's best judgment, after advice from its insurance
broker, is acceptable for the nature and extent of the business of the Company
as currently being conducted, and as currently proposed to be conducted.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
------------------------------------------------
Each Purchaser hereby severally (and not jointly) represents and warrants
to the Company with respect to the purchase of the Series B Shares as follows:
4.1 Experience. Such Purchaser has substantial experience in evaluating
----------
and investing in private placement transactions of securities in companies
similar to the Company so that such Purchaser is capable of evaluating the
merits and risks of such Purchaser's investment in the Company and has the
capacity to
-14-
<PAGE>
protect such Purchaser's own interests.
4.2 Investment. Such Purchaser is acquiring the Series B Shares and
----------
such Purchaser's right to convert the Series B Shares into Conversion Stock for
investment for such Purchaser's own account not as a nominee or agent, and not
with the view to, or for resale in connection with, any distribution thereof.
Such Purchaser understands that the Series B Shares and the Conversion Stock
have not been, and will not be, registered under the Securities Act or the
securities laws of any state by reason of exemptions from the registration
provisions of the Securities Act and such laws which depend upon, among other
things, the bona fide nature of the investment intent and the accuracy of such
Purchaser's representations as expressed herein.
4.3 Rule 144. Such Purchaser acknowledges that the Series B Shares must
--------
be held indefinitely unless subsequently registered under the Securities Act or
an exemption from such registration is available. Such Purchaser is aware of
the provisions of Rule 144 promulgated under the Securities Act which permit the
limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things, (i) the
existence of a public market for the shares, (ii) the availability of certain
current public information about the Company, (iii) the resale occurring not
less than two years after a parry (who is not an "affiliate") has purchased and
fully paid for the shares to be sold, (iv) the sale being effected through a
"broker's transaction" or in transactions directly with a "market maker" (as
provided by Rule 144(f)) and (v) the number of shares being sold during any
three-month period not exceeding specified limitations.
4.4 No Public Market. Such Purchaser understands that no public market
----------------
now exists for any of the securities issued by the Company and that there is no
assurance that a public market will ever exist for the Series B Shares or the
Conversion Stock.
4.5 Access to Data. Such Purchaser has had an opportunity to discuss
--------------
the Company's business, management, and financial affairs with the Company's
management and the opportunity to review the Company's facilities and business
plan. Such Purchaser has also had an opportunity to ask questions of officers
of the Company, which questions were answered to its satisfaction. The
Purchasers acknowledge that they have had an opportunity to conduct their own
independent due diligence investigation of the Company.
4.6 Authorization. This Agreement and the Ancillary Agreements, when
-------------
executed and delivered by such Purchaser, will constitute valid and legally
binding obligations of the Purchaser,
-15-
<PAGE>
enforceable in accordance with their respective terms, subject to (i) laws of
general application relating to bankruptcy, insolvency, and the relief of
debtors, and (ii) rules of law governing specific performance, injunctive
relief, or other equitable remedies. Such Purchaser, if not a natural person,
has corporate or partnership, as the case may be, power and authority to enter
into and to perform its obligations under this Agreement and the Ancillary
Agreements in accordance with their respective terms. Such Purchaser represents
that it has not been organized, reorganized or recapitalized specifically for
the purpose of investing in the Company. Such Purchaser if a natural person has
the legal capacity to enter into and perform his or her obligations under this
Agreement and the Ancillary Agreements in accordance with their respective
terms. Such Purchaser, if a corporation, is duly organized and validly existing
under its respective jurisdiction of incorporation. Such Purchaser, if a
partnership, is duly formed and validly formed under its respective jurisdiction
of formation.
4.7 Brokers or Finders. Neither the Purchaser nor the Company has
------------------
incurred, or will incur, directly, or indirectly, as a result of any action
taken by such Purchaser, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby.
4.8 Accredited Investor. Such Purchaser is an "Accredited Investor" as
-------------------
that term is defined in Rule 501(a) of Regulation D promulgated under the
Securities Act, except for Seth Harrison, who represents and warrants that he
either alone or through his purchaser representative has such knowledge and
experience in financial and business matters that he is capable of evaluating
the merits and risks of purchasing the Series B Shares being acquired by him
hereunder. Each Purchaser other than Seth Harrison has its principal office in
the state set forth in Schedule A hereto. Seth Harrison resides in the state
set forth in Schedule A hereto.
SECTION 5
CONDITIONS TO THE FIRST CLOSING OF THE PURCHASERS
-------------------------------------------------
The obligations of each Purchaser obligated to purchase any Series B Shares
at the First Closing is, at the option of each such Purchaser, subject to the
fulfillment on or prior to the First Closing Date of the following conditions:
5.1 Representations and Warranties. The representations and warranties
------------------------------
made by the Company in Section 3 of this Agreement
-16-
<PAGE>
shall have been true and correct when made, and shall be true and correct as of
the First Closing Date.
5.2 Covenants. All covenants, agreements, and conditions contained in
---------
this Agreement to be performed by the Company on or prior to the First Closing
shall have been fully performed or complied with in all respects.
5.3 Compliance Certificate. The Company shall have delivered to the
----------------------
Purchasers acquiring Series B Shares at the First Closing a Compliance
Certificate in substantially the form attached hereto as Exhibit F, executed by
an executive officer of the Company, dated the First Closing Date, and
certifying to the fulfillment of the conditions specified thereon.
5.4 Blue Sky Law. The Company shall have obtained, or shall obtain
------------
within the time periods required by applicable law, all necessary blue sky law
permits and qualifications, or secured exemptions therefrom, required by any
state for the offer and sale of the securities at the First Closing.
5.5 Restated Certificate. The Restated Certificate shall have been
--------------------
filed with the Secretary of State of the State of Delaware.
5.6 Reservation of Stock. The shares of Conversion Stock initially
--------------------
issuable upon conversion of the issued and outstanding Series B Shares shall
have been duly authorized and reserved for issuance. The shares of Common Stock
reserved for issuance upon the exercise of options issued or to be issued to
employees, consultants and management shall have been duly authorized and
reserved for issuance.
5.7 Proceedings and Documents. All corporate and other proceeding in
-------------------------
connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be reasonably satisfactory in
substance and form to counsel for the Purchasers acquiring Series B Shares at
the First Closing, and they shall have received all such counterpart originals
or certified or other copies of such documents as they may reasonably request.
5.8 Board of Directors. Section 3(b) of Article FOURTH of the Restated
------------------
Certificate shall provide that the authorized number of directors of the Company
shall initially be six (6), three (3) of whom shall be elected by the holders of
the Series B Shares, voting as a class, two (2) of whom shall be elected by the
holders of the Preferred Stock and Common Stock voting together, on an as-
converted basis, and one (1) of whom shall be elected by the
-17-
<PAGE>
holders of the Common Stock, who shall be the Chief Executive Officer of the
Company. The Company's board of directors shall, upon the First Closing,
consist of Ann Lamont, Stephen M. Dow, Christopher Moller, David Scheer, Frank
Baldino and Claude Nash.
5.9 Opinion of Counsel. Each Purchaser acquiring Series B Shares at the
------------------
First Closing shall have received from Pepper, Hamilton & Scheetz, counsel for
the Company, an opinion, dated the First Closing Date, satisfactory in form and
substance to the Purchasers and their special counsel, and which shall be
substantially in the form of Exhibit G, attached hereto.
5.10 No Litigation. No action, suit or other proceeding shall be pending
-------------
or threatened before any court, tribunal, or Governmental authority seeking or
threatening to restrain or prohibit the consummation of the transactions
contemplated hereby, or seeking to obtain substantial damages in respect thereof
or which would otherwise materially and adversely affect the Company, its
business, assets, prospects or financial condition.
5.11 Voting Agreement. The Company and each Purchaser shall have entered
----------------
into the Shareholders' Voting Agreement, which shall be in form and substance
satisfactory to the Purchasers and their special counsel.
5.12 Investors' Rights Agreement. The Company, each Founder and each
---------------------------
Purchaser shall have entered into the Investors' Rights Agreement which shall be
satisfactory in form and substance to the Purchasers and their special counsel.
5.13 Sanofi Agreement. The Company and Sanofi shall have entered into a
----------------
written memorandum of understanding with respect to the terms and provisions of
an exclusive licensing agreement for WIN63843 and all other analogs and backup
compounds of the same family, which memorandum of understanding shall be on
terms and provisions satisfactory to the Purchasers and their special counsel.
5.14 Founders' Agreements. On or prior to the First Closing, each
--------------------
Founder and the Company shall have either entered into (a) an Amendment to each
of their respective Employee Stock Purchase Agreements or Consultant Stock
Purchase Agreements, as the case may be, in substantially the form of Exhibit H,
attached hereto, which shall be in form and substance satisfactory to the
Purchasers and their special counsel, and which shall amend such agreements to,
among other things, (i) grant the Company (and its permitted designees and
assignees) a right of first refusal with respect to any Series A Shares now or
hereafter owned by a Founder, (ii) terminate and rescind the Company's right of
repurchase for
-18-
<PAGE>
shares of Common Stock which shall have "vested" as defined in such stock
purchase agreements), (iii) restrict the Company's right to repurchase any
shares of Common Stock and/or Series A Shares or take any other action which
could disqualify the Purchaser's Common Stock from qualifying for treatment
under Section 1202 of the Code, (iv) in the event that the Company shall have
assigned such repurchase rights under any such stock purchase agreement to the
Purchasers, permit each Founder other than the Founder whose Common Stock and/or
Series A Shares is being repurchased to participate in such right of repurchase
on a pro-rata basis, and (v) provide for the automatic "vesting" of all shares
of Common Stock owned by such Founder in the event of a (A) sale of all or
substantially all the assets of the Company, or (B) the acquisition of the
Company by another entity, by means of a merger, consolidation or otherwise, in
the case of either (A) or (B), in which the Company's valuation exceeds
$50,000,000; and (b) proprietary information agreements containing provisions
satisfactory to the Purchasers with respect to confidentiality, corporate
ownership of inventions and innovations during employment, and non-solicitation
of employees and customers during and for one year after employment.
5.15 Series B Bridge Notes. At or prior to the First Closing, each
---------------------
holder of a Series B Note will convert the entire unpaid principal balance
thereof into Series B Shares.
5.16 Series A Bridge Notes. At or prior to the First Closing, the holder
---------------------
of the Series A Note will convert the entire unpaid principal balance thereof
into Series A Shares.
5.17 Minimum Investment. The Purchasers shall purchase not less than
------------------
3,560,000 Series B Shares at the First Closing, for an aggregate purchase price
equal to not less than $3,560,000.
5.18 Indemnification Agreement. The Company shall have entered into an
-------------------------
Indemnification Agreement with each person designated to become a director
pursuant to Section 5.8 hereof if so requested by such person, which agreement
shall be in form and substance reasonably satisfactory to each such person and
the Purchaser's special counsel.
SECTION 6
CONDITIONS TO FIRST CLOSING OF THE COMPANY
------------------------------------------
The Company's obligation to sell and issue any Series B Shares at the First
Closing is, at the option of the Company, subject to the fulfillment on or prior
to the First Closing Date of the
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<PAGE>
following conditions:
6.1 Representations and Warranties. The representations and warranties
------------------------------
made by each Purchaser in Section 4 of this Agreement shall have been true and
correct when made, and shall be true and correct as of the First Closing Date.
6.2 Blue Sky Law. The Company shall have obtained all necessary blue
------------
sky law permits and qualifications, or secured exemptions thereon, required by
any state for the offer and sale of the Series B Shares at the First Closing.
6.3 Minimum Investment. The Purchasers shall purchase not less than
------------------
3,560,000 Series B Shares at the First Closing, for an aggregate purchase price
equal to not less than $3,560,000.
6.4 Conversion of the Series B Notes. At the First Closing, the
--------------------------------
Purchasers shall have presented to the Company for conversion, each of the
outstanding Series B Notes.
SECTION 7
CONDITIONS TO SECOND CLOSING OF THE PURCHASERS
----------------------------------------------
The obligations of each Purchaser obligated to acquire Series B Shares at
the Second Closing is, at the option of each such Purchaser, subject to the
fulfillment, on or prior to the Second Closing Date of the following conditions:
7.1 Occurrence of First Closing. The First Closing shall have occurred.
---------------------------
7.2 No Material Adverse Change. Since the First Closing Date, there
--------------------------
shall not have occurred any event or series of events which, individually or in
the aggregate, would have or is likely to have had, a material and adverse
effect on the Company or its business as presently conducted or as proposed to
be conducted, or its operations, financial condition or prospects.
7.3 Proceedings and Documents. All corporate and other proceedings in
-------------------------
connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be reasonably satisfactory in
form and substance to counsel for the Purchasers acquiring Series B Shares at
the Second Closing, and they shall have received all such counterpart originals
or certified or other copies of such documents as it may reasonably request.
-20-
<PAGE>
7.4 Compliance Certificate. Each Purchaser acquiring Series B Shares at
----------------------
the Second Closing shall have received a certificate of the President of the
Company, substantially in the form of Exhibit F hereto, certifying as to the
fulfillment of the conditions specified in this Section 7 and that there has
been no material adverse change in the business, affairs, assets, operations
prospects or financial condition of the Company since the date hereof.
7.5 Opinion of Company's Counsel. Each Purchaser acquiring Series B
----------------------------
Shares at the Second Closing shall have received an opinion of counsel to the
Company to the effect as contemplated by Section 5.9 hereof, except to reflect
changes necessitated by the occurrence of the First Closing.
SECTION 8
CONDITIONS TO SECOND CLOSING OF THE COMPANY
-------------------------------------------
The obligations of the Company to issue and sell the Series B Shares to be
issued and sold at the Second Closing is, at the option of the Company, subject
to the fulfillment, on or prior to the Second Closing Date, of the following
conditions:
8.1 Occurrence of First Closing. The First Closing shall have occurred.
---------------------------
8.2 Representations and Warranties. The representations and warranties
------------------------------
set forth in Section 4 hereof shall be true and correct on and as of the Second
Closing Date as to each such Purchaser acquiring Series B Shares at the Second
Closing Date as if made on the Second Closing Date.
8.3 Performance. Each Purchaser acquiring Series B Shares at the Second
-----------
Closing shall have complied with all agreements, obligations and conditions
contained in this Agreement by and as of the Second Closing Date.
SECTION 9
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
-----------------------------------------------------------
9.1 Survival of Representations and Warranties. The representations,
------------------------------------------
warranties and covenants of the parties made
-21-
<PAGE>
herein shall survive the Closing for a period of two years from and after the
date of the Second Closing and shall in no way be affected by any investigation
of the subject matter thereof made by or on behalf of the Purchasers and their
respective representatives and agents. All statements contained herein or in
any certificate, schedule or other writing delivered in connection with the
transactions contemplated hereby shall be deemed representations and warranties
of the respective parties making them.
9.2 Indemnification by the Company. The Company, hereby agrees to
------------------------------
indemnify and hold each of the Purchasers harmless from or against, for and in
respect of any and all damages, losses, obligations, liabilities, claims,
actions or causes of action, encumbrances, costs, or expenses suffered,
sustained, incurred or required to be paid by any Purchaser arising out of or in
connection with or as a result of the breach by the Company or any
representation, warranty, covenant or agreement contained in this Agreement. In
addition, the Company hereby agrees to indemnify and hold each Purchaser
harmless from or against, for and in respect of all reasonable costs and
expenses including, without limitation, reasonable attorneys' fees and expenses,
interest and penalties) incurred by any Purchaser in connection with any action,
suit, proceeding, demand, claim, assessment or judgment incident to any of the
matters indemnified against in this Section 9.2.
SECTION 10
GENERAL PROVISIONS
------------------
10.1 Governing Law. This Agreement shall be governed by, and construed
-------------
according to the laws of the Commonwealth of Pennsylvania.
10.2 Successors and Assigns; Third Party Beneficiaries. Except as
-------------------------------------------------
otherwise expressly limited 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 and the provisions of Section 9 shall inure
to the benefit of each party entitled to indemnification hereunder, including
each indemnified party, provided, however, that the rights of a Purchaser to
purchase Series B Shares shall not be assignable without the consent of the
Company.
10.3 Entire Agreement; Amendment and Waiver. This Agreement and the
--------------------------------------
Ancillary Agreements constitute the full and entire understanding and agreement
between the parties with regard to the subject matters hereof and thereof. Any
term of this Agreement may
-22-
<PAGE>
be amended, and the observance of any term hereof may be waived (either
generally or in a particular instance) only with the written consent of
Purchasers representing sixty percent (60%) of the Series B Shares on a fully
converted basis held by the Purchasers at the time of the occurrence of such
waiver or amendment and the written consent of the Company. Any amendment or
waiver effected in accordance with this Section 10.3 shall be binding upon each
of the parties hereto.
10.4 Notices, etc. All notices and other communications required or
------------
permitted hereunder shall be in writing and shall be (i) mailed by registered or
-------
certified mail, postage prepaid, (ii) delivered by reliable overnight courier
service, or (iii) otherwise delivered by hand or by messenger, addressed if to a
Purchaser, to such Purchaser's address set forth on the Schedule of Purchasers,
or at such other address as such Purchaser shall have furnished to the Company
in writing with a copy to Finn Dixon & Herling, One Landmark Square, Stamford,
Connecticut 06901. Attention: Michael J. Herling, Esq., telecopier no.
(203) 348-5777, or (B) if to the Company, to 1250 South Collegeville Road.
P.O. Box 5000. Collegeville, Pennsylvania 19426, telecopier no. (610) 983-5301,
or at such other address as the Company shall have furnished to the Purchasers,
with a copy to Pepper, Hamilton & Scheetz, 1235 Westlakes Drive, Suite 400,
Berwyn, Pennsylvania 19312-2401. Attention: Jeffrey P. Libson, Esq., telecopier
no. (610) 640-7835.
10.5 Delays or Omissions. No delay or omission to exercise any right,
-------------------
power. or remedy accruing to any party upon any, breach or default under this
Agreement, shall be deemed a waiver to 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 party or any breach or default under this
Agreement, or any waiver on the part of any party of any party of any provisions
or conditions of this Agreement, must begin 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 any of the parties,
shall be cumulative and not alternative.
10.6 References. Unless the context otherwise requires any reference to
----------
a "Section" refers to a section of this Agreement. Any reference to "this
Section" refers to the whole number section in which such reference is
contained.
10.7 Severability. If any provision of this Agreement is held to be
------------
unenforceable under applicable law, then such provision shall be excluded from
this Agreement and the balance of this Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
-23-
<PAGE>
The court in its discretion may substitute for the excluded provision an
enforceable provision which in economic substance reasonable approximates the
excluded provision.
10.8 Exclusive Dealing. From and after the date hereof and until the
-----------------
consummation of the Second Closing, the Company hereby agrees that it shall not
take any action, directly or indirectly, to encourage, initiate or engage in
discussions or negotiations with, or provide any information to, any party(ies)
other than the Purchasers (or their respective representatives, agents and
employees), concerning any purchase and sale of any securities of the Company,
any merger or sale of all or substantially all the assets, all or any portion of
the Company, or any similar transaction involving the Company and/or the shares
of the Company's Common StocK.
10.9 Fees and Expenses. The Company shall pay the reasonable fees and
-----------------
disbursements of the of Finn Dixon & Herling, counsel for the Purchasers
incurred in connection with the negotiation, execution and deliver of this
Agreement and the Ancillary Agreements; provided, however, that the legal fees
-------- -------
(but not the disbursements) shall not exceed $20.000. In addition, the Company
shall pay all expenses incurred by it in connection with the negotiation,
execution and deliver of this Agreement and the Ancillary Agreements and the
enforcement by the Purchasers of any of their respective rights and benefits
arising hereunder or under any Ancillary Agreement against the Company, Nash
and/or any Founder (as defined in the Investors' Rights Agreement) including,
without limitation, reasonable fees and disbursements of one counsel for the
Purchasers.
10.10 Pronouns. All pronouns and any variations thereof refer to the
--------
masculine, feminine or neuter, singular or plural, as the identity, of the
person or persons may require.
10.11 Counterparts. This Agreement may be executed in any, number of
------------
counterparts, each of which shall be deemed an original and enforceable against
the parties actually executing such counterpart, and all of which, when taken
together, shall constitute one instrument.
10.12 Remedies. The parties to this Agreement acknowledge and agree that
--------
a breach of any of the covenants of the Company, the Purchasers or the Founders
set forth in this Agreement may not be compensable by payment of money damages
and, therefore, that the covenants of the foregoing parties set forth in this
Agreement may be enforced in equity by a decree requiring specific performance.
-24-
<PAGE>
VIROPHARMA, INC.
SERIES C CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
May 31, 1996
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<C> <S> <C>
SECTION 1 AUTHORIZATION AND SALE OF THE SHARES.............................. 1
1.1 Authorization..................................................... 1
1.2 Sale of the Securities............................................ 1
SECTION 2 CLOSING DATE, DELIVERY............................................ 1
2.1 Closing........................................................... 1
2.2 Delivery.......................................................... 1
SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE
COMPANY.................................................................. 2
3.1 Organization and Standing......................................... 2
3.2 Certificate of Incorporation and Bylaws........................... 2
3.3 Corporate Power................................................... 2
3.4 Subsidiaries...................................................... 2
3.5 Capitalization.................................................... 2
3.6 Authorization..................................................... 3
3.7 Financial Statements.............................................. 4
3.8 Title to Properties and Assets.................................... 4
3.9 Related-Party Transactions........................................ 4
3.10 Permits........................................................... 5
3.11 Liabilities....................................................... 5
3.12 Intellectual Property............................................. 5
3.13 Material Contracts................................................ 6
3.14 Compliance with Other Instruments................................. 6
3.15 Litigation........................................................ 7
3.16 Registration Rights............................................... 7
3.17 Governmental Consent.............................................. 7
3.18 Employees......................................................... 8
3.19 Inventions and Non-Disclosure Agreements.......................... 8
3.20 Tax Returns, Payments, and Elections.............................. 8
3.21 Environmental and Safety Laws..................................... 8
3.22 Brokers or Finders................................................ 8
3.23 Small Business Stock Qualification................................ 8
3.24 US Real Property Holding Corporation.............................. 9
3.25 ERISA............................................................. 9
3.26 Federal Reserve Regulations....................................... 10
3.27 Disclosure........................................................ 10
3.28 Securities Act.................................................... 10
3.29 Insurance......................................................... 10
</TABLE>
i
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<TABLE>
<S> <C>
SECTION 4 REPRESENTATIONS AND WARRANTIES OF THE
PURCHASER................................................................ 11
4.1 Experience........................................................ 11
4.2 Investment........................................................ 11
4.3 Rule 144.......................................................... 11
4.4 No Public Market.................................................. 11
4.5 Access to Data.................................................... 12
4.6 Authorization..................................................... 12
4.7 Brokers or Finders................................................ 12
4.8 Accredited Investor............................................... 12
SECTION 5 CONDITIONS TO THE CLOSING OF THE PURCHASERS....................... 12
5.1 Representations and Warranties.................................... 12
5.2 Covenants......................................................... 13
5.3 Compliance Certificate............................................ 13
5.4 Blue Sky Law...................................................... 13
5.5 Restated Certificate.............................................. 13
5.6 Reservation of Stock.............................................. 13
5.7 Proceedings and Documents......................................... 13
5.8 No Litigation..................................................... 13
5.9 Investors' Rights Agreement....................................... 13
5.10 Shareholders' Voting Agreement.................................... 13
5.11 Minimum Investment................................................ 14
5.12 Opinion of Counsel................................................ 14
SECTION 6 CONDITIONS TO CLOSING OF THE COMPANY.............................. 14
6.1 Representations and Warranties.................................... 14
6.2 Blue Sky Law...................................................... 14
6.3 Minimum Investment................................................ 14
SECTION 7 SURVIVAL OF REPRESENTATIONS AND WARRANTIES
INDEMNIFICATION.......................................................... 14
7.1 Survival of Representations and Warranties........................ 14
7.2 Indemnification by the Company.................................... 14
SECTION 8 GENERAL PROVISIONS................................................ 15
8.1 Governing Law..................................................... 15
8.2 Successors and Assigns; Third Party Beneficiaries................. 15
8.3 Entire Agreement; Amendment and Waiver............................ 15
8.4 Notices, etc...................................................... 15
8.5 Delays or Omissions............................................... 16
8.6 References........................................................ 16
8.7 Severability...................................................... 16
</TABLE>
ii
<PAGE>
8.8 Fees and Expenses................................................. 16
8.9 Pronouns.......................................................... 16
8.10 Counterparts...................................................... 16
8.11 Remedies.......................................................... 16
EXHIBIT A Form of Restated Certificate
- ---------
EXHIBIT B Schedule of Exceptions
- ---------
EXHIBIT C Pre-Closing Capitalization Schedule
- ---------
EXHIBIT D Form of Investors' Rights Agreement
- ---------
EXHIBIT E Form of Shareholders' Voting Agreement
- ---------
EXHIBIT F Form of Officer's Certificate
- ---------
iii
<PAGE>
VIROPHARMA, INC.
SERIES C CONVERTIBLE PREFERRED STOCK PURCHASE
AGREEMENT
This agreement (this "Agreement") is made effective as of May 30, 1996 by
and among VIROPHARMA, INC., a Delaware corporation (the "Company"), and each of
the individuals and entities set forth on the "Schedule of Purchasers" attached
hereto as Schedule A (the "Purchasers").
SECTION 1
AUTHORIZATION AND SALE OF THE SHARES
------------------------------------
1.1 Authorization. The Company will have authorized before the Closing
-------------
(as defined below) the sale and issuance of up to 3,222,222 shares of Series C
Convertible Preferred Stock, par value $0.001 per share (the "Series C Shares"),
having the rights, preferences, privileges, and restrictions as set forth in the
Company's Amended and Restated Certificate of Incorporation (the "Restated
Certificate") attached hereto as Exhibit A.
The "Conversion Stock" means the shares of the Company's common stock, par
value $0.001 per share, issued or issuable upon conversion of the Series C
Shares.
1.2 Sale of the Securities. Subject to the terms and conditions hereof,
----------------------
the Company shall sell and issue to each Purchaser, and each Purchaser shall
purchase from the Company, the Series C Shares specified on Schedule A, at the
purchase price per share of $2.25.
SECTION 2
CLOSING DATE, DELIVERY
----------------------
2.1 Closing. The closing (the "Closing") of the purchase and sale of the
-------
Series C Shares hereunder shall take place by transfer of executed copies of the
documents and stock certificates contemplated hereby delivered on the date of
the Closing at the law offices of Morgan, Lewis & Bockius LLP, 2000 One Logan
Square, Philadelphia, PA 19103, at 10:00 a.m. on May 30, 1996. At the Closing,
the Purchasers shall purchase and the Company shall issue and sell 3,222,222
Series C Shares, having an aggregate purchase price equal to $7,274,999.25. The
date of the Closing is hereinafter referred to as the "Closing Date."
<PAGE>
2.2 Delivery. The Company shall deliver to the Purchasers the appropriate
--------
certificate(s) representing that number of Series C Shares designated for the
Closing, which shall be delivered to each Purchaser against payment of the
purchase price therefor by each of them in the amount specified on Schedule A,
by (i) delivery to the Company of a certified or bank check payable to the
Company, (ii) wire transfer, or (iii) some combination thereof.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
The Company hereby represents and warrants to the Purchasers that, except
as set forth on the Schedule of Exceptions attached hereto as Exhibit B,
specifically identifying the relevant subparagraph(s) hereof, which exceptions
shall be deemed to be representations and warranties as if made hereunder:
3.1 Organization and Standing. The Company is a corporation duly
-------------------------
organized and validly existing under the laws of the State of Delaware and is in
good standing under such laws. The Company has all requisite corporate power
and authority to own and operate its properties and assets, and to carry on its
business as presently conducted and as proposed to be conducted by the Company.
The Company is qualified to do business as a foreign corporation in the
Commonwealth of Pennsylvania and there exists no other jurisdiction in which the
failure to be so qualified could have a material adverse effect upon the
business, properties, prospects or financial condition of the Company.
3.2 Certificate of Incorporation and Bylaws. The Company has made
---------------------------------------
available to counsel for the Purchasers true, correct, and complete copies of
the Company's certificate of incorporation, as amended, and the Company's
bylaws, as amended.
3.3 Corporate Power. The Company has all requisite corporate power and
---------------
authority to execute and deliver this Agreement and the Ancillary Agreements (as
defined below), to sell and issue the Series C Shares hereunder, to issue the
Conversion Stock, and to carry out and perform its obligations under the terms
of this Agreement, the Restated Certificate and each of the Ancillary
Agreements.
3.4 Subsidiaries. The Company has no subsidiaries and does not otherwise
------------
own or control, directly or indirectly, any other person, corporation,
association, or business entity. The Company is not a participant in any joint
venture, partnership, or similar arrangement.
3.5 Capitalization. The authorized capital stock of the Company will,
--------------
upon the filing of the Restated Certificate, consist of 39,000,000 shares (i) of
which 27,000,000 are designated Common Stock, par value $0.001 per share (the
"Common Stock"), and (ii) of
2
<PAGE>
which 12,000,000 are designated Preferred Stock, par value $0.001 per share (the
"Preferred Stock"), 675,000 shares of which are designated "Series A Preferred
Stock" (the "Series A Shares"), and 7,219,994 shares of which are designated
"Series B Preferred Stock." There are 675,000 shares of Series A Preferred
Stock and 7,060,000 shares of the Series B Preferred Stock issued and
outstanding. Upon the filing of the Restated Certificate with the Secretary of
the State of Delaware, there will be authorized 3,222,222 Series C Shares. All
1,739,000 shares of the Company's Common Stock, which are issued and
outstanding, are subject to vesting restrictions imposed pursuant to Employee
Stock Purchase Agreements (except for 325,000 shares of Common Stock held of
record by Scheer & Company, Inc. which are not subject to such vesting
restrictions). All of such issued and outstanding shares of the Company's
capital stock have been duly authorized and validly issued, are fully paid and
nonassessable, and were issued in compliance with all applicable federal and
state securities laws. The relative rights, privileges, and preferences of the
Series A Shares, Series B Shares, Series C Shares and Common Stock will be as
stated in the Restated Certificate. Except for (i) options granted to the
persons listed on Section 3.5(a) of the Schedule of Exceptions to purchase the
number of shares of Common Stock set forth opposite each such person's name, and
(ii) the Series B Warrants, there are no options, warrants, conversion
privileges, or preemptive or other rights or agreements presently outstanding to
purchase or otherwise acquire any authorized but unissued shares of the capital
stock or other securities of the Company. The Company is not a party or subject
to any agreement or understanding, and, to the best of the Company's knowledge,
except as set forth on Section 3.5(c) of the Schedule of Exceptions and except
as contemplated hereby and by the Ancillary Agreements, there is no agreement or
understanding with any person that affects or relates to the voting or giving of
written consents with respect to any security or the voting by a director of the
Company. The legal and beneficial ownership of the Company's issued and
outstanding equity, securities immediately prior to the Closing are set forth on
Exhibit C, attached hereto.
3.6 Authorization. By corporate action on the part of the Company, its
-------------
officers, directors, and its stockholders necessary for the authorization,
execution, delivery, and performance of this agreement, the Restated
Certificate, the Investors' Rights Agreement, substantially in the form of
Exhibit D, the Shareholders' Voting Agreement, substantially in the form of
Exhibit E, and all other agreements executed in connection with the transactions
contemplated hereby (the Investors' Rights Agreement, the Shareholders' Voting
Agreement, the Restated Certificate, and such other agreements contemplated
hereby being sometimes hereinafter referred to individually as an "Ancillary
Agreement" and collectively as the "Ancillary Agreements") by the Company, the
authorization, sale, issuance and delivery of the Series C Shares at the
Closing, the authorization and reservation of the Conversion Stock, and the
performance of all of the Company's obligations hereunder and thereunder have
been taken or will be taken prior to the Closing. This Agreement and each of
the Ancillary Agreements, when executed and delivered by the Company, will
constitute a valid and legally binding obligation of the Company, enforceable in
accordance with their respective terms, subject
3
<PAGE>
to (i) laws of general application relating to bankruptcy, insolvency, and the
relief of debtors, and (ii) rules of law governing specific performance,
injunctive relief, or other equitable remedies. The Company has reserved
3,222,222 Shares of Common Stock for issuance upon conversion of Series C
Shares. The Series C Shares, when issued in accordance with this Agreement,
will be duly authorized, validly issued, fully paid, and nonassessable, and will
have the rights, preferences, privileges and restrictions as set forth in the
Restated Certificate. The Conversion Stock has been duly and validly reserved
and, when issued upon conversion of the Series C Shares in accordance with the
Restated Certificate, will be duly authorized, validly issued, fully paid, and
nonassessable. The Series C Shares and the Conversion Stock, when issued, will
be free of any liens, claims, encumbrances or restrictions on transfer;
provided, however, that the Series C Shares will be subject to (i) restrictions
- -------- -------
on transfer under federal and state securities laws and (ii) certain other
restrictions contained in the Investors' Rights Agreement.
3.7 Financial Statements. The unaudited balance sheet of the Company as
--------------------
of December 31, 1995 (the "Balance Sheet Date") and the related unaudited
statement of operations, statement of stockholders' equity and statement of cash
flows for the fiscal year ended December 31, 1995, certified by the Chief
Executive Officer or Executive Director of Finance and Administration of the
Company, copies of which have heretofore been furnished to the Purchasers are
true, correct and complete in all material respects and present fairly the
financial position of the Company as at such date, and the results of operations
and cash flows for such period then ended. All such financial statements have
been prepared in accordance with generally accepted accounting principles
applied consistently throughout the periods involved. Since December 31, 1995,
the Company has not incurred any material liabilities other than in connection
with the operating leases set forth as items 5(c) and 5(d) of the Schedule of
Exceptions, and there has been no change, and no development or event involving
a prospective change, which has had or could reasonably be expected to have, a
material adverse effect on the business, operations, property, condition
(financial or otherwise) or prospects of the Company.
3.8 Title to Properties and Assets. Except as set forth in Section 3.8 of
------------------------------
the Schedule of Exceptions, the Company has good and marketable title to all of
its owned real property (including fixtures), good, valid and legal title to all
its personal properties and assets, and has good title to all its leasehold
interests, in each case subject to no mortgage, pledge, lien, lease, conditional
sale agreement, security interest, encumbrance, or charge other than (i) liens
for current taxes not yet due and payable and (ii) minor liens and encumbrances
which have arisen in the ordinary course of business and which do not, in any
one case, materially detract from the value of the property subject thereto or
materially impair the operations of the Company.
3.9 Related-Party Transactions. No employee, officer, director or
--------------------------
consultant of the Company or member of his or her immediate family is indebted
to the Company. No employee, officer, director or consultant of the Company or
member of his or her
4
<PAGE>
immediate family has any direct or indirect ownership interest in any firm or
corporation with which the Company is affiliated or with which the Company has a
business relationship, or any firm or corporation that competes with the
Company, except stock ownership by employees, officers, or directors of the
Company and members of their immediate families in publicly traded companies
that may compete with the Company. No officer or director or any member of
their immediate families is, directly or indirectly, interested in any material
contract with the Company.
3.10 Permits. The Company has all franchises, permits, licenses,
-------
authorizations, approvals, and any similar authority necessary for the conduct
of its business as now being conducted by it, the lack of which could,
individually or in the aggregate, materially and adversely affect the business,
properties, financial condition, or operating results of the Company and
believes it can obtain, without undue burden or expense, any similar authority
for the conduct of its business as planned by the Company to be conducted or as
may otherwise have been contemplated. The Company is not in violation of, or
default in any material respect under, any of such franchises, permits,
licenses, authorizations, approvals, or other similar authority.
3.11 Liabilities. Except as set forth in Section 3.11 of the Schedule of
-----------
Exceptions, the Company has no indebtedness for borrowed money that the Company
has directly or indirectly created, incurred, assumed or guaranteed, or with
respect to which the Company, has otherwise become directly or indirectly
liable. Except as aforesaid, the Company has no liabilities or obligations,
absolute or contingent, which are, individually or in the aggregate, material to
the business, properties, financial condition or operating results of the
Company, except obligations under contracts made in the ordinary course of
business that would not be required to be recorded in financial statements
prepared in accordance with generally accepted accounting principles.
3.12 Intellectual Property. The Company does not own or possess and is
---------------------
not licensed with respect to any "Intellectual Property" (as defined below in
this Section 3.12) other than as set forth in Section 3.12 of the Schedule of
Exceptions. The Company owns or possesses sufficient legal rights to all
Intellectual Property necessary for its business as presently conducted and as
proposed to be conducted without any conflict or infringement of, rights of
others. Section 3.12 of the Schedule of Exceptions contains a complete list of
all of the intellectual property rights of the Company, used in the business of
the Company, and except as set forth therein, there are no outstanding options,
licenses, or agreements of any kind relating to the foregoing Intellectual
Property nor is the Company bound by or a party to any options, licenses, or
agreements of any kind with respect to the Intellectual Property of any other
person or entity. No stockholder, director, officer or employee of the Company
or any other person or entity other than the Company has any interest in any of
the Company's Intellectual Property which has not been waived, or in any
inventions, profits, royalties or other property arising therefrom. The Company
has not received any communications alleging that the Company has violated or,
by conducting its business as proposed, would violate any
5
<PAGE>
intellectual property rights of any other person or entity. None of the
Company's employees is obligated under any contract (including licenses,
covenants, or commitments of any nature) or other agreement, or subject to any
judgment, decree, or order of any court or administrative agency, that would
interfere with the use of such employee's best efforts to promote the interests
of the Company or that would conflict with the Company's business as proposed to
be conducted. None of the execution or delivery of this Agreement or any
Ancillary Agreement, or the carrying on of the Company's business by the
employees of the Company, or the conduct of the Company's business as proposed,
will conflict with or result in a breach of the terms, conditions, or provisions
of, or constitute a default under, any contract, covenant or instrument under
which any of such employees is now obligated. It is not currently necessary,
and the Company currently believes that in the future it will not be necessary,
to use any inventions of any of its employees (or persons it currently intends
to hire) made prior to their employment by the Company. Except as set forth on
Schedule 3.12 of the Schedule of Exceptions, all of the Company's Intellectual
Property is owned by the Company, free and clear of all liens and encumbrances.
Any and all patents, patent applications, copyrights, copyright applications,
trademarks and trademark applications relating to the Company's Intellectual
Property are owned by the Company and held in the Company's name. As used in
this Agreement the term "Intellectual Property" means all intellectual property
rights and other intangible property rights (other than standard license
agreements and other related rights acquired by the Company or under which the
Company is the licensee in connection with the Company's use of administrative,
ministerial, accounting and financial office automation software and related
products) including, without limitation, patents, patent applications, patent
rights, trademarks, trademark applications, trade names, fictitious or assumed
names, service marks, service mark applications, copyrights, copyright
applications, software, know-how, certificates of public convenience and
necessity, franchises, licenses, inventions, trade secrets, proprietary
processes, formulae and computer programs, software and displays.
3.13 Material Contracts. All contracts, agreements, and instruments, (a)
------------------
involving amounts of $50,000 or more in any one case, (b) which could,
individually or in the aggregate, have a material effect on the Company (or its
business, assets, properties, financial condition, operations or operating
results), or (c) which relate to the Company's Intellectual Property and to
which the Company is a party, are legal, valid, binding, and in full force and
effect, and, to the Company's knowledge, are enforceable by the Company in
accordance with their respective terms, subject to (i) laws of general
application relating to bankruptcy, insolvency and the relief of debtors, (ii)
rules of law governing specific performance, injunctive relief or other
equitable remedies, and (iii) actions or omissions of parties other than the
Company; provided, however, that the Company has no knowledge of any such
-------- -------
actions or omissions. Section 3.13 of the Schedule of Exceptions lists all such
contracts, agreements and instruments. Except as set forth in Section 3.13 of
the Schedule of Exceptions, the Company has not granted rights to manufacture,
produce, assemble, license, market or sell its products to any other
6
<PAGE>
person and is not bound by any agreement that affects the Company's exclusive
right to develop, manufacture, assemble, distribute, market, or sell its
products.
3.14 Compliance with Other Instruments. The Company is not in violation
---------------------------------
of any term of its certificate of incorporation or bylaws (each as amended
through the date hereof), or of any material term or provision of any mortgage,
indebtedness, indenture, contract agreement, instrument, judgment or decree, and
is not in violation of any order, statute, rule, or regulation (collectively
"Laws") applicable to the Company. The execution, delivery, and performance of,
and compliance with this Agreement and the Ancillary Agreements, the issuance of
the Series C Shares, and the consummation of the transactions contemplated
hereby and thereby, have not resulted and will not result in any violation of,
or conflict with, or constitute with or without the passage of time or giving of
notice or both, a default under, any such term or provision of Law or result in
the creation of any mortgage, pledge, lien, encumbrance, or charge upon any of
the properties or assets of the Company or the suspension, revocation,
impairment, forfeiture, or non-renewal of any material franchise, permit,
license, authorization, or approval applicable to the Company. There is no such
term or provision of Law which materially and adversely affects the business of
the Company or any of its properties or assets.
3.15 Litigation. There are no actions, suits, proceedings, or
----------
investigations pending or, to the Company's knowledge, threatened against the
Company or its properties before any court or governmental agency (nor, to the
Company's knowledge, is there any basis therefor). The foregoing includes,
without limitation, any action, suit, proceeding, or investigation pending or
currently threatened against the Company involving the prior employment of any
of the Company's employees, their use in connection with the Company's business
of any, information or techniques allegedly proprietary to any of their former
employers, their obligations under any agreements with prior employers, or
negotiations by the Company with potential backers of, or investors in, the
Company or its proposed business. The Company is not a party to, or to the
Company's knowledge, named in any order. writ, injunction. judgment or decree of
any court, government agency, or instrumentality. There is no action, suit or
proceeding by the Company currently pending, or that the Company currently
intends to initiate.
3.16 Registration Rights. Except as set forth in the Investors' Rights
-------------------
Agreement, the Company is not under any obligation to register (as defined in
the Investors' Rights Agreement) any of its presently outstanding securities or
any of its securities which may hereafter be issued.
3.17 Governmental Consent. No consent, approval, or authorization of, or
--------------------
designation, declaration, notification, or filing with any governmental
authority on the part of the Company is required in connection with the valid
execution and delivery of this Agreement or any of the Ancillary Agreements, the
offer, sale, or issuance of the Series C Shares, the issuance of the Conversion
Stock upon exercise thereof, or the
7
<PAGE>
consummation of any other transaction contemplated hereby, except the (i) filing
of the Restated Certificate with the Delaware Secretary of the State, (ii)
filing of a Notice of Limited Offering Exemption on Form D under the Securities
Act of 1933, as amended, and the rules and regulations promulgated thereunder
(the "Securities Act") with the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act (the "Commission"),
and (iii) qualification (or the taking of such action as may be necessary to
secure an exemption from qualification, if available) of the offer and sale of
the Series C Shares under applicable blue sky laws of the Commonwealth of
Pennsylvania, which filings and qualifications, if required, will be
accomplished in a timely manner; provided, however, that solely with respect to
-------- -------
federal and state "blue sky" securities laws, the representations and warranties
provided in this Section 3.17 shall be subject to the accuracy of the
representations of the Purchaser set forth in Section 4 hereof.
3.18 Employees. No employee of the Company is or will be in violation of
---------
any judgment, decree, or order, or any term of any employment contract, patent
disclosure agreement or other contract or agreement relating to the relationship
of any such employee with the Company, or any other parry because of the nature
of the business conducted or to be conducted by the Company or the use by the
employee of his best efforts with respect to such business. Except as set forth
in Section 3.18 of the Schedule of Exceptions, the Company is not a party to or
bound by any currently effective employment contracts, deferred compensation
agreement, bonus plan, incentive plan, profit sharing plan, retirement agreement
or other employee compensation agreements. No officer or key employee, or any
group of key employees, intends to terminate his or their employment with the
Company, nor does the Company have a present intention to terminate the
employment of any of the foregoing. Subject to general principles related to
wrongful termination of employees, the employment of each officer and employee
of the Company is terminable at the will of the Company.
3.19 Inventions and Non-Disclosure Agreements. Each employee and officer
----------------------------------------
of the Company has executed an Inventions and Non-Disclosure Agreement
substantially in the form or forms delivered to special counsel for the
Purchasers.
3.20 Tax Returns, Payments, and Elections. The Company has timely filed
------------------------------------
all tax returns and reports as required by law. These returns and reports are
true and correct in all material respects. The Company has timely paid all
taxes and other assessments due, except those contested by it in good faith.
The Company has not elected pursuant to the Internal Revenue Code of 1986, as
amended ("Code"), to be treated as an S corporation or as a collapsible
corporation pursuant to Section 1362(a) or Section 341(f) of the Code, nor has
it made any other elections pursuant to the Code (other than elections that
relate solely to methods of accounting, depreciation or amortization) that would
have a material effect on the business, properties, prospects, or financial
condition of the Company. The Company has withheld or collected from each
payment made to each of its employees, the amount of all Federal Insurance
8
<PAGE>
Unemployment Tax Act taxes required to be withheld or collected therefrom, and
has paid the same to the proper tax receiving officers or authorized
depositories.
3.21 Environmental and Safety Laws. The Company is not in violation of
-----------------------------
any applicable statute, law, or regulation relating to the environment or
occupational health and safety, and to its knowledge, no material expenditures
are or will be required in order to comply with any such existing statute, law
or regulation.
3.22 Brokers or Finders. The Company has not incurred, and will not
------------------
incur, directly or indirectly, as a result of any action taken by the Company,
any liability for brokerage or finders' fees or agents' commissions or any
similar charges in connection with this Agreement or any transaction
contemplated hereby.
3.23 Small Business Stock Qualification. Subject to the continued
----------------------------------
satisfaction after the Closing Date of the requirements of Sections 1202(c)(2)
and (3) of the Code, (i) upon issuance on the Closing Date, the Series C Shares
will be "qualified small business stock" within the meaning of Section 1202 of
the Code; and (ii) as of the Closing Date, the Company will not have made,
directly or indirectly, any redemption described in Section 1202(c)(3) of the
Code.
3.24 US Real Property Holding Corporation. The Company is not now and has
------------------------------------
never been a "United States real property holding corporation," as defined in
Section 897(c)(2) of the Code and Section 1.897-2(b) of the Regulations
promulgated by the Internal Revenue Service, and the Company has filed with the
Internal Revenue Service all statements, if any, with its United States income
tax returns which are required under Section 1.8972(h) of such Regulations.
3.25 ERISA. Except as listed in Section 3.25 of the Schedule of
-----
Exceptions, neither the Company nor any entity required to be aggregated with
the Company under Sections 414(b), (c), (m), (n) or (c) of the Code sponsors,
maintains, has any obligation to contribute to, has any liability under, or is
otherwise a party to, any Benefit Plan. For purposes of this Agreement,
"Benefit Plan" shall mean any plan, fund, program, policy, arrangement or
contract, whether formal or informal, which is in the nature of (i) an employee
pension benefit plan (as defined in Section 3(2) of ERISA) or (ii) an employee
welfare benefit plan (as defined in Section 3(l) of ERISA). With respect to
each Benefit Plan listed in Section 3.25 of the Schedule of Exceptions, to the
extent applicable:
(a) Each such Benefit Plan has been maintained and operated in all
material respects in compliance with its terms and with all applicable
provisions of ERISA, the Code and all regulations, rulings and other authority
issued thereunder;
(b) All contributions required by law to have been made under each
such Benefit Plan (without regard to any waivers granted under Section 412 of
the Code)
9
<PAGE>
to any fund or trust established thereunder or in connection therewith have been
made by the due date thereof;
(c) Each such Benefit Plan intended to qualify under Section 401(a) of
the Code is the subject of a favorable unrevoked determination letter issued by
the Internal Revenue Service as to its qualified status under the Code, which
determination letter may still be relied upon as to such tax qualified status,
and no circumstances have occurred that would adversely affect the tax qualified
status of any such Benefit Plan; and
(d) The actuarial present value of all accrued benefits under each
such Benefit Plan subject to Title IV of ERISA did not, as of the latest
valuation date of such Benefit Plan, exceed the then current value of the assets
of such Benefit Plan allocable to such accrued benefits, all as based upon the
actuarial assumptions and methods currently used for such Benefit Plan;
(e) None of such Benefit Plans that are "employee welfare benefit
plans" as defined in Section 3(l) of ERISA provides for continuing benefits or
coverage for any participant or beneficiary of a participant after such
participant's termination of employment, except as required by Sections 601
through 608 of ERISA;
(f) Neither the Company nor any trade or business (whether or not
incorporated) under common control with the Company within the meaning of
Section 4001 of ERISA has, or at any time has had, any obligation to contribute
to any "multiemployer plan" as defined in Section 3(37) of ERISA; and
(g) If any such Benefit Plan is not subject to ERISA and covers any
non-United States employee or former employee of the Company, then according to
the actuarial assumptions and valuations most recently used for the purpose of
funding each such plan (or, if the same has no such assumptions and valuations
or is unfunded, then according to the actuarial assumptions and valuations in
use by the Pension Benefit Guaranty Corporation), the total amount or value of
the funds available under each such plan to pay benefits accrued thereunder or
segregated in respect of such accrued benefits, together with any reserve or
accrual with respect thereto, exceeds the present value of all benefits (actual
or contingent) accrued as of such date of all participants and past participants
therein who are employees or former employees of the Company.
3.26 Federal Reserve Regulations. The Company is not engaged in the
---------------------------
business of extending credit for the purpose of purchasing or carrying margin
securities (within the meaning of Regulation G of the Board of Governors of the
Federal Reserve System), and no part of the proceeds of the Series C Shares will
be used to purchase or carry any margin security or to extend credit to others
for the purpose of purchasing or carrying any margin security or in any other
manner which would involve a violation of any of the regulations of the Board of
Governors of the Federal Reserve System.
10
<PAGE>
3.27 Disclosure. No representation or warranty of the Company contained
----------
in this Agreement, the other Ancillary Agreements, in the Schedule of
Exceptions, in the exhibits attached hereto or in any written statement or
certificate furnished or to be furnished to the Purchasers pursuant hereto or in
connection with the transactions contemplated hereby, when read together,
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained herein or therein not
misleading in light of the circumstances under which they were made.
3.28 Securities Act. Subject to the accuracy of the Purchasers'
--------------
representations in Section 4 and in written responses to the Company's
inquiries, the offer, sale, and issuance of the Series C Shares in conformity
with the terms of this Agreement constitute transactions exempt from the
registration requirements of Section 5 of the Securities Act.
3.29 Insurance. The Company has in full force and effect fire and
---------
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductions) to allow it to replace any of its properties
that might be damaged or destroyed, and such other policies of insurance, and in
such amounts as in the Company's best judgment, after advice from its insurance
broker, is acceptable for the nature and extent of the business of the Company
as currently being conducted, and as currently proposed to be conducted.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
-----------------------------------------------
Each Purchaser hereby severally (and not jointly) represents and warrants
to the Company with respect to the purchase of the Series C Shares as follows:
4.1 Experience. Such Purchaser has substantial experience in evaluating
----------
and investing in private placement transactions of securities in companies
similar to the Company so that such Purchaser is capable of evaluating the
merits and risks of such Purchaser's investment in the Company and has the
capacity to protect such Purchaser's own interests.
4.2 Investment. Such Purchaser is acquiring the Series C Shares and such
----------
Purchaser's right to convert the Series C Shares into Conversion Stock for
investment for such Purchaser's own account, not as a nominee or agent, and not
with the view to, or for resale in connection with, any distribution thereof.
Such Purchaser understands that the Series C Shares and the Conversion Stock
have not been, and will not be, registered under the Securities Act or the
securities laws of any state by reason of exemptions from the registration
provisions of the Securities Act and such laws which depend upon,
11
<PAGE>
among other things, the bona fide nature of the investment intent and the
accuracy of such Purchaser's representations as expressed herein.
4.3 Rule 144. Such Purchaser acknowledges that the Series C Shares must
--------
be held indefinitely unless subsequently registered under the Securities Act or
an exemption from such registration is available. Such Purchaser is aware of
the provisions of Rule 144 promulgated under the Securities Act which permit the
limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things, (i) the
existence of a public market for the shares, (ii) the availability of certain
current public information about the Company, (iii) the resale occurring not
less than two years after a party (who is not an "affiliate") has purchased and
fully paid for the shares to be sold, (iv) the sale being effected through a
"broker's transaction" or in transactions directly with a "market maker" (as
provided by, Rule 144(f)) and (v) the number of shares being sold during any
three-month period not exceeding specified limitations.
4.4 No Public Market. Such Purchaser understands that no public market
----------------
now exists for any of the securities issued by the Company and that there is no
assurance that a public market will ever exist for the Series C Shares or the
Conversion Stock.
4.5 Access to Data. Such Purchaser has had an opportunity to discuss the
--------------
Company's business, management, and financial affairs with the Company's
management and the opportunity to review the Company's facilities and business
plan. Such Purchaser has also had an opportunity to ask questions of officers
of the Company, which questions were answered to its satisfaction. The
Purchasers acknowledge that they have had an opportunity to conduct their own
independent due diligence investigation of the Company.
4.6 Authorization. This Agreement and the Ancillary Agreements, when
-------------
executed and delivered by such Purchaser, will constitute valid and legally
binding obligations of the Purchaser, enforceable in accordance with their
respective terms, subject to (i) laws of general application relating to
bankruptcy, insolvency, and the relief of debtors, and (ii) rules of law
governing specific performance, injunctive relief, or other equitable remedies.
Such Purchaser, if not a natural person, has full corporate or partnership, as
the case may be, power and authority to enter into and to perform its
obligations under this Agreement and the Ancillary Agreements in accordance with
their respective terms. Such Purchaser represents that it has not been
organized, reorganized or recapitalized specifically for the purpose of
investing in the Company. Such Purchaser if a natural person has the legal
capacity to enter into and perform his or her obligations under this Agreement
and the Ancillary Agreements in accordance with their respective terms, Such
Purchaser, if a corporation, is duly organized and validly existing under its
respective jurisdiction of incorporation. Such Purchaser, if a partnership, is
duly and validly formed under its respective jurisdiction of formation.
12
<PAGE>
4.7 Brokers or Finders. Neither the Company nor any Purchaser has
------------------
incurred, or will incur, directly or indirectly, as a result of any action taken
by such Purchaser, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby.
4.8 Accredited Investor. Such Purchaser is an "Accredited Investor" as
-------------------
that term is defined in Rule 501(a) of Regulation D promulgated under the
Securities Act.
SECTION 5
CONDITIONS TO THE CLOSING OF THE PURCHASERS
-------------------------------------------
The obligations of each Purchaser obligated to purchase any Series C Shares
at the Closing is, at the option of each such Purchaser, subject to the
fulfillment on or prior to the Closing Date of the following conditions:
5.1 Representations and Warranties. The representations and warranties
------------------------------
made by the Company in Section 3 of this Agreement shall have been true and
correct when made. and shall be true and correct as of the Closing Date.
5.2 Covenants. All covenants, agreements, and conditions contained in
---------
this Agreement to be performed by the Company on or prior to the Closing shall
have been fully performed or complied with in all respects.
5.3 Compliance Certificate. The Company shall have delivered to the
----------------------
Purchasers acquiring Series C Shares at the Closing a Compliance Certificate in
substantially the form attached hereto as Exhibit F, executed by an executive
officer of the Company, dated the Closing Date, and certifying to the
fulfillment of the conditions specified thereon.
5.4 Blue Sky Law. The Company shall have obtained, or shall obtain within
------------
the time periods required by applicable law, all necessary blue sky law permits
and qualifications, or secured exemptions therefrom, required by any state for
the offer and sale of the securities at the Closing.
5.5 Restated Certificate. The Restated Certificate shall have been filed
--------------------
with the Secretary of State of the State of Delaware.
5.6 Reservation of Stock. The shares of Conversion Stock initially
--------------------
issuable upon conversion of the issued and outstanding Series C Shares shall
have been duly authorized and reserved for issuance. The shares of Common Stock
reserved for issuance upon the exercise of options issued or to be issued to
employees, consultants and management shall have been duly authorized and
reserved for issuance.
13
<PAGE>
5.7 Proceedings and Documents. All corporate and other proceedings in
-------------------------
connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be reasonably satisfactory in
substance and form to counsel for the Purchasers acquiring Series C Shares at
the Closing, and they shall have received all such counterpart originals or
certified or other copies of such documents as they may reasonably request.
5.8 No Litigation. No action, suit or other proceeding shall be pending
-------------
or threatened before any Court, tribunal, or governmental authority seeking or
threatening to restrain or prohibit the consummation of the transactions
contemplated hereby, or seeking to obtain substantial damages in respect thereof
or which would otherwise materially and adversely affect the Company, its
business, assets, prospects or financial condition.
5.9 Investors' Rights Agreement. The Company and the Purchasers shall
---------------------------
have entered into the Investors' Rights Agreement which shall be satisfactory in
form and substance to the Purchaser and their counsel.
5.10 Shareholders' Voting Agreement. The Company and the Purchasers shall
------------------------------
have entered into the Shareholders' Voting Agreement which shall be satisfactory
in form and substance to the Purchasers and their counsel.
5.11 Minimum Investment. Each Purchaser shall purchase not less than
------------------
2,222 Series C Shares at the Closing, for a purchase price equal to not less
than $5,000.
5.12 Opinion of Counsel. The Purchasers shall have received an opinion
------------------
from Morgan, Lewis & Bockius LLP, counsel for the Company, satisfactory in form
and substance to the Purchasers.
SECTION 6
CONDITIONS TO CLOSING OF THE COMPANY
------------------------------------
The Company's obligation to sell and issue any Series C Shares at the
Closing is, at the option of the Company, subject to the fulfillment on or prior
to the Closing Date of the following conditions:
6.1 Representations and Warranties. The representations and warranties
------------------------------
made by the Purchasers in Section 4 of this Agreement shall have been true and
correct when made, and shall be true and correct as of the Closing Date.
14
<PAGE>
6.2 Blue Sky Law. The Company shall have obtained all necessary blue sky
------------
law permits and qualifications or secured exemptions therefrom, required by any
state for the offer and sale of the Series C Shares at the Closing.
6.3 Minimum Investment. The Purchasers shall purchase not less than 2,222
------------------
Series C Shares at the Closing, for a purchase price equal to not less than
$5,000.
SECTION 7
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
------------------------------------------
INDEMNIFICATION
---------------
7.1 Survival of Representations and Warranties. The representations,
------------------------------------------
warranties and covenants of the parties
<PAGE>
made herein shall survive the Closing for a period of two years from and after
the date of the Closing and shall in no way be affected by any investigation of
the subject matter thereof made by or on behalf of the Purchaser and their
respective representatives and agents. All statements contained herein or in any
certificate, exhibit, schedule or other writing delivered in connection with the
transactions contemplated hereby shall be deemed representations and warranties
of the respective parties making them.
7.2 Indemnification by the Company. The Company hereby agrees to
------------------------------
indemnify and hold each Purchaser and its officers, directors, employees, agents
and affiliates, harmless from or against, for and in respect of any and all
damages, losses, obligations, liabilities, claims, actions or causes of action,
encumbrances, costs, or expenses suffered, sustained, incurred or required to be
paid by the Purchaser arising out of or in connection with or as a result of the
breach by the Company of any representation, warranty, covenant or agreement
contained in this Agreement. In addition, the Company hereby agrees to
indemnify and hold each Purchaser and its officers, directors, employees, agents
and affiliates, harmless from or against, for and in respect of all reasonable
costs and expenses (including, without limitation, reasonable attorneys' fees
and expenses, interest and penalties) incurred by any such entity or individual
in connection with any action, suit, proceeding, demand, claim, assessment or
judgment incident to any of the matters indemnified against in this Section 7.2.
Furthermore, the Company shall indemnify each Purchaser for any finder's or
similar fees that are required to be paid by such Purchaser in connection with
this transaction to any third party engaged by the Company, and the Purchasers
shall indemnify the Company and each other Purchaser for any finder's or similar
fees that are required to be paid by the Company or such Purchaser in connection
with this transaction to any third party engaged by any Purchaser.
SECTION 8
15
<PAGE>
GENERAL PROVISIONS
------------------
8.1 Governing Law. This Agreement shall be governed by and construed
-------------
according to the laws of the Commonwealth of Pennsylvania.
8.2 Successors and Assigns; Third Party Beneficiaries. Except as
-------------------------------------------------
otherwise expressly limited 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 and the provisions of Section 7 shall inure
to the benefit of each party entitled to indemnification hereunder, including
each indemnified party.
8.3 Entire Agreement; Amendment and Waiver. This Agreement and the
--------------------------------------
Ancillary Agreements constitute the full and entire understanding and agreement
between the parties with regard to the subject matters hereof and thereof any
term of this Agreement may be amended and the observance of any term hereof may
be waived (either generally or in a particular instance) only with the written
consent of at least 66 2/3% of the Series C Shares held by Purchasers on a fully
converted basis held by the Purchasers at the time of the occurrence of such
waiver or amendment and the written consent of the Company. Any amendment or
waiver effected in accordance with this Section 8.3 shall be binding upon each
of the parties hereto.
8.4 Notices, etc. All notices and other communications required or
------------
permitted hereunder shall be in writing and shall be (i) mailed by registered or
certified mail, postage prepaid, (ii) delivered by reliable overnight courier
service, or (iii) otherwise delivered by hand or by messenger, addressed (A) if
to a Purchaser, to such Purchaser's address set forth on the Schedule of
Purchasers or at such other address as such Purchaser shall have furnished to
the Company in writing or (B) if to the Company, to 76 Great Valley Parkway,
Malvern, Pa. 19355, fax no. (610) 651-0588, or at such other address as the
Company shall have furnished to the Purchasers, with a copy to Morgan, Lewis &
Bockius LLP, 2000 One Logan Square, Philadelphia, PA 19103, fax no. (215) 963-
5299.
8.5 Delays or Omissions. No delay or omission to exercise any right,
-------------------
power, or remedy, accruing to any party upon any breach or default under this
Agreement, shall be deemed a waiver of any other breach or default therefore or
thereafter occurring. Any waiver, permit, consent, or approval of any kind or
character on the part of any party of any breach or default under this
Agreement, or any waiver on the part of any party 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 any of the parties, shall be
cumulative and not alternative.
16
<PAGE>
8.6 References. Unless the context otherwise requires, any reference to
----------
a "Section" refers to a section of this Agreement. Any reference to "this
Section" refers to the whole number section in which such reference is
contained.
8.7 Severability. If any provision of this Agreement is held to be
------------
unenforceable under applicable law, then such provision shall be excluded from
this Agreement and the balance of this Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms. The court in its discretion may substitute for the excluded provision an
enforceable provision which in economic substance reasonably approximates the
excluded provision.
8.8 Fees and Expenses. Each Purchaser shall pay all expenses incurred by
-----------------
it in connection with the negotiation, execution and delivery of this Agreement
and the Ancillary Agreement; provided, however, that the Company shall reimburse
each Purchaser for reasonable attorneys' fees and expenses not to exceed
$10,000.
8.9 Pronouns. All pronouns and any variations thereof refer to the
--------
masculine, feminine or neuter, singular or plural, as the identity of the person
or persons may require.
8.10 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original and enforceable against
the party's actually executing such counterpart, and all of which, when taken
together, shall constitute one instrument.
8.11 Remedies. The parties to this Agreement acknowledge and agree that a
--------
breach of any of the covenants of the Company or the Purchasers set forth in
this Agreement may not be compensable by payment of money damages and,
therefore, that the covenants of the foregoing parties set forth in this
Agreement may be enforced in equity by a decree requiring specific performance.
17
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the day and year first written.
THE COMPANY: VIROPHARMA, INC.
By:
-------------------------------
Name:
Title:
THE PURCHASERS: FRAZIER HEALTHCARE II, L.P.
By:
-------------------------------
Name:
Title:
OAK INVESTMENT PARTNERS VI,
LIMITED PARTNERSHIP
By:
-------------------------------
Name:
Title:
OAK VI AFFILIATES
FUND, LIMITED
PARTNERSHIP
By:
-------------------------------
Name:
Title:
SEVIN ROSEN FUND IV L.P.
By:
-------------------------------
Name:
Title:
18
<PAGE>
SEVIN ROSEN BAYLESS
MANAGEMENT COMPANY
By:
-------------------------------
Name:
Title:
----------------------------------
Jennifer Gill Roberts
----------------------------------
Stephen L. Domenik
TECHNOLOGY LEADERS II L.P.
By:
-------------------------------
Name:
Title:
TECHNOLOGY LEADERS II
OFFSHORE L.P.
By:
-------------------------------
Name:
Title:
NEW YORK LIFE INSURANCE
COMPANY
By:
-------------------------------
Name:
Title:
19
<PAGE>
SCHEER & COMPANY, INC.
By:
-------------------------------
Name:
Title:
----------------------------------
Claude Nash
----------------------------------
Marc Collett
----------------------------------
Johanna Griffin
----------------------------------
Guy Diana
----------------------------------
Vincent Milano
----------------------------------
Joshua Lederberg
20
<PAGE>
Schedule A
----------
<TABLE>
<CAPTION>
Investor Name Investment # of Shares
- ------------- ---------- -----------
<S> <C> <C>
Frazier Healthcare II, L.P. $3,375,000.00 1,500,000
601 Union Street
Suite 2110
Seattle, WA 98101
Oak Investment Partners VI, Limited 1,120,116.72 497,830
Partnership
One Gorham Island
Westport, CT 06880
Oak VI Affiliates Fund, Limited 26,134.53 11,615
Partnership
One Gorham Island
Westport, CT 06880
Sevin Rosen Fund IV L.P. 954,222.75 424,099
13455 Noel Road, Suite 1670
Dallas, TX 75240
Attn: John V. Jaggers
Sevin Rosen Bayless Management 4,999.50 2,222
Company
13455 Noel Road, Suite 1670
Dallas, TX 75240
Attn: John V. Jaggers
Jennifer Gill Roberts 9,999.00 4,444
550 Lytton Avenue, Suite 200
Palo Alto, CA 94025
Stephen L. Domenik 24,999.75 11,111
550 Lytton Avenue, Suite 200
Palo Alto, CA 94025
Technology Leaders II L.P. 551,390.00 245,062
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Investor Name Investment # of Shares
- ------------- ---------- -----------
<S> <C> <C>
Technology Leaders II Offshore C.V. 438,005.00 194,669
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
New York Life Insurance Company 482,632.00 214,503
51 Madison Avenue
New York, NY 10016
Claude Nash 65,003.00 28,890
318 Nottingham Drive
Spring City, PA 19475
Marc Collett 70,000.00 31,111
113 Juniper Court
Collegeville, PA 19426
Johanna Griffin 25,000.00 11,111
225 Kathleen Way
Glenmoore, PA 19343
Guy Diana 25,000.00 11,111
1566 Glenmar Drive
Pottstown, PA 19464
Vincent Milano 5,000.00 2,222
6 Trotter Court
Hamilton, NJ 08619
Scheer & Company, Inc. 22,500.00 10,000
c/o David Sheer
51 Sage Hollow Road
Guilford, CT 06405
Joshua Lederberg 50,000.00 22,222
Scholar's Residence
Apartment 32P
New York, NY 10021
$7,250,000.00 3,222,222
</TABLE>
22
<PAGE>
EXHIBIT B
SCHEDULE OF EXCEPTIONS
----------------------
1. Section 3.5.
-----------
The Company has entered into contractual obligations to grant 736,000
options to purchase shares of the Company's Common Stock to the following
persons, and in the following amounts:
<TABLE>
<CAPTION>
Name Number of
- ---- ---------
Shares
------
<S> <C>
Consultants:
Ari Helenius 30,000
Michael Hayre 10,000
Michael Rossmann 30,000
Charles Rice 30,000
Robert Lamb 30,000
Hugh Black 15,000
Larry Pinto 15,000
Burt Flanegan 15,000
Carolyn Kruse 20,000
Kazuaki Yonemoto 5,000
Employees 406,200
Total Options under obligation: 606,200
Unallocated Option Pool: 129,800
-------
Total Options 736,000
=======
</TABLE>
2. Section 3.8:
-------------
The company has granted to the Ben Franklin Technology Center of
Southeastern Pennsylvania ("Ben Franklin") a security interest in and to all
methods, processes, knowhow, copyrights, patents, trade secrets, proprietary
information, inventions and all applications thereof, and all intangible
personal property (the "Security Interest"), arising from a project for the
chemical design and synthesis of influenza, virus drugs (the "Project"). The
Company granted the Security interest to Ben Franklin in connection with a loan
received by the Company from Ben Franklin for the Project (as defined in the Ben
Franklin Agreement) pursuant to that certain Emerging Company Investment Funding
Agreement dated May 16, 1995 between the Company and Ben Franklin (the "Ben
Franklin Agreement").
<PAGE>
3. Section 3.11:
-------------
The Company is entitled to receive a loan in the amount of $50,000 by Ben
Franklin pursuant to the Ben Franklin Agreement. The Company is obligated to
pay Ben Franklin an amount equal to 3% of Company Revenues (as defined in the
Ben Franklin Agreement) each calendar quarter starting on October 1, 1995. The
Company is obligated to make total payments to Ben Franklin that are not to
exceed an amount equal to three (3) times the amount of the loan, but may be on
October 1, 1996, with a $4,500 prepayment penalty.
4. Section 3.12:
-------------
The Company has developed assays for influenza and hepatitis-C helicase in
addition. The company has identified molecules which inhibit both viral targets
that the Company believes may be patentable. The Company holds patents covering
the HCV assay and selected groups of HCV and influenza compounds. The Company
has completed negotiating several agreements that concern Intellectual Property,
including but not limited to an agreement with Sanofi for the license by the
company for all pharmaceutical formulation based on WIN 63843 (the "Sanofi
Agreement") and WIN 68881.
5. Section 3.13:
-------------
(a) The Sanofi Agreement
(b) The Ben Franklin Agreement
(c) The Comdisco Agreement
(d) The Phoenix Agreement
(e) The Centocor Agreement
6. Section 3.18:
-------------
(a) The Nondisclosure Agreements referred to in Section 3.19.
7. Section 3.25:
-------------
The following is a list of all Benefit Plans provided by the
Company:
(a) Dental and health insurance through the Aetna Health Plan under
provider number 127789.
2
<PAGE>
(b) Life and disability insurance through Aetna Life & Casualty under
provider number 127789.
(c) Long term disability under Unum Group Policy number 102818-001.
(d) Employees are permitted to make pre-tax contributions to defray
such employees' contributions for the Company's insurance
premiums.
(e) 401(k) plan
3
<PAGE>
THE SALE AND ISSUANCE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAW OF ANY STATE OR
OTHER JURISDICTION. THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE DISTRIBUTION
THEREOF. THESE SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED, OR
TRANSFERRED UNLESS (I) A REGISTRATION STATEMENT UNDER THE ACT IS IN
EFFECT AS TO THESE SECURITIES AND SUCH OFFER, SALE, PLEDGE, OR
TRANSFER IS IN COMPLIANCE WITH APPLICABLE SECURITIES LAW OF ANY STATE
OR OTHER JURISDICTION OR (II) THERE IS AN OPINION OF COUNSEL OR OTHER
EVIDENCE, SATISFACTORY TO THE COMPANY, THAT AN EXEMPTION THEREFROM IS
AVAILABLE AND THAT SUCH OFFER, SALE, PLEDGE, OR TRANSFER IS IN
COMPLIANCE WITH APPLICABLE SECURITIES LAW OF ANY STATE OR OTHER
JURISDICTION.
NO. WB - 1 WARRANT TO PURCHASE 33,333 SHARES OF SERIES B
PREFERRED STOCK (SUBJECT TO ADJUSTMENT)
WARRANT TO PURCHASE SERIES B PREFERRED STOCK
OF
VIROPHARMA. INC.
VOID AFTER MARCH 3, 2002
(SUBJECT TO EARLIER TERMINATION IN ACCORDANCE WITH THE TERMS HEREOF)
This certifies, that for value received, Oak Investment Partners VI,
Limited Partnership, or registered assigns (the "Holder"), is entitled, subject
to the terms set forth below, to purchase from VIROPHARMA, INC., a Delaware
corporation (the "Company"), 33,333 shares of the Series B Preferred Stock, par
value $0.001 per share, of the Company as may be constituted upon the filing
(the "Warrant Issue Date") of an Amended and Restated Certificate of
Incorporation of the Company or other amendment of the Company's Certificate of
Incorporation in effect on the date hereof containing terms substantially
similar to those set forth in the Memorandum of Terms (the "Memorandum of
Terms") attached to that certain letter of intent, dated March 3, 1995, among
the Holder, Sevin Rosen Fund IV, L.P., Technology Leaders, L.P. and the Company
upon surrender hereof, at the principal office of the Company referred to below,
with the subscription form attached hereto duly executed, and simultaneous
payment therefor in lawful money of the United States or otherwise as
hereinafter provided, at the Exercise Price as set forth in Section 2 below. The
number, character and Exercise Price of such shares of Series B Preferred Stock
are subject to adjustment as provided below. The term "Warrant" as used herein
shall include this Warrant, which is one of a series of warrants issued for the
<PAGE>
Series B Preferred Stock of the Company, and any warrants delivered in
substitution or exchange therefor as provided herein.
This Warrant is issued in connection with the transactions described in that
certain 9.5% Convertible Demand Promissory Note, dated of even date herewith,
made by the Company in favor of the Holder, in the original principal amount of
$100,000.00.
1. TERM OF WARRANT. Subject to the terms and conditions set forth herein,
this Warrant shall be exercisable, in whole or in part, during the term
commencing on the Warrant Issue Date and ending on the earlier to occur of (a)
5:00 p.m., Eastern Standard Time, on March 3, 2002 and (b) the closing of a firm
commitment underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended (the "Act"), covering the
offer and sale of shares of Common Stock for the account of the Company and/or
selling shareholders to the public at a price per share of not less than $5.00
per share (appropriately adjusted for any recapitalization, stock split, stock
dividend or the like) and resulting in aggregate net proceeds to the Company
and/or the selling shareholders (after deducting underwriters' discounts and
expenses relating to the issuance) of not less than $10,000,000 (a "Qualified
IPO"), and shall be void thereafter.
2. EXERCISE PRICE. The Exercise Price at which this Warrant may be exercised
shall be $1.00 per share of Series B Preferred Stock, as adjusted from time to
time pursuant to Section 11 hereof.
3. EXERCISE OF WARRANT.
(a) The purchase rights represented by this Warrant are exercisable by the
Holder in whole or in part at any time, or from time to time, during the term
hereof as described in Section 1 above, by the surrender of this Warrant and the
Notice of Exercise attached as Annex I hereto duly completed and executed on
behalf of the Holder, at the principal office of the Company (or such other
office or agency of the Company as it may designate by notice in writing to the
Holder at the address of the Holder appearing on the books of the Company), upon
payment (i) in cash payable to the Company, (ii) by wire transfer, (iii) by
cancellation by the Holder of indebtedness of the Company to the Holder, or (iv)
by some combination of (i), (ii) and (iii), in each case, of the purchase price
of the shares to be purchased.
(b) This Warrant shall be deemed to have been exercised immediately prior
to the close of business on the date of its surrender for exercise as provided
above, and the person entitled to receive the shares of Series B Preferred Stock
issuable upon such exercise shall be treated for all purposes as the holder of
record of such shares as of the close of business on such date. As promptly as
practicable on or after such date and in any event within ten (10) days
thereafter, the Company at its expense shall issue and deliver to the person or
persons entitled to receive the same a certificate or certificates for the
number of shares issuable upon such exercise. In the event that this Warrant is
exercised in part, the Company at its expense shall execute and deliver a new
Warrant of like tenor exercisable for the number of shares for which this
Warrant may then be exercised.
(c) Notwithstanding any provisions herein to the contrary, if the fair
market value of one share of Series B Preferred Stock is greater than the
Exercise Price (at the date of calculation as set forth below), in lieu of
exercising this Warrant for cash, the Holder may elect to receive shares equal
to the value (as determined below) of this Warrant (or the portion being
canceled) by surrender of this Warrant at the principal office of the Company
together with the properly endorsed Notice of Exercise
-2-
<PAGE>
and notice of such election in which event the Company shall issue to the Holder
a number of shares of Series B Preferred Stock computed using the following
formula:
X=Y(A-B)
------
A
Where X = the number of shares of Series B Preferred Stock to be
issued to the Holder
Y = the number of shares of Series B Preferred Stock
purchasable under the Warrant or, if only a portion of
the Warrant is being exercised, the portion of the
Warrant being canceled (at the date of such
calculation)
A = the fair market value of one share of the Company's
Series B Preferred Stock (at the date of such
calculation)
B = the Exercise Price (as adjusted to the date of such
calculation)
For purposes of the above calculation, the fair market value of one share of
Series B Preferred Stock shall be determined by the Company's Board of Directors
in good faith; provided, however, that where there exists a public market for
the Company's Common Stock at the time of such exercise, the fair market value
per share shall be the product of (i) the average of the closing bid and asked
prices of the Common Stock quoted in the Over-The-Counter Market Summary or the
last reported sale price of the Common Stock or the closing price quoted on the
NASDAQ National Market System or on any exchange on which the Common Stock is
listed, whichever is applicable, as published in the Eastern Edition of The Wall
--- ----
Street Journal for the five (5) trading days prior to the date of determination
- ------ -------
of fair market value and (ii) the number of shares of Common Stock into which
each share of Series B Preferred Stock is convertible at the time of such
exercise. Notwithstanding the foregoing, in the event the Warrant is exercised
in connection with the Company's initial public offering of Common Stock, the
fair market value per share shall be the product of (i) the per share offering
price to the public of the Company's initial public offering, and (ii) the
number of shares of Common Stock into which each share of Series B Preferred
Stock is convertible at the time of such exercise.
4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. In lieu of
any fractional share to which the Holder would otherwise be entitled, the
Company shall make a cash payment equal to the Exercise Price multiplied by
such fraction.
5. REPLACEMENT OF WARRANT. On receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of this Warrant and,
in the case of loss, theft or destruction, on delivery of an indemnity agreement
reasonably satisfactory in form and substance to the Company or, in the case of
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense shall execute and deliver, in lieu of this Warrant, a new warrant of
like tenor and amount.
6. RIGHTS OF STOCKHOLDERS. Subject to Sections 9 and 11 of this Warrant, the
Holder shall not be entitled to vote or receive dividends or be deemed the
holder of Series B Preferred Stock or any other securities of the Company that
may at any time be issuable on the exercise hereof for any purpose, nor
-3-
<PAGE>
shall anything contained herein be construed to confer upon the Holder, as such,
any of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action (whether
upon any recapitalization, issuance of stock, reclassification of stock, change
of par value, or change of stock to no par value, consolidation, merger,
conveyance, or otherwise) or to receive notice of meetings, or to receive
dividends or subscription rights or otherwise until this Warrant shall have been
exercised as provided herein.
7. TRANSFER OF WARRANT.
(a) WARRANT REGISTER. The Company shall maintain a register (the "Warrant
Register") containing the names and addresses of the Holder or Holders. Any
Holder of this Warrant or any portion thereof may change his address as shown on
the Warrant Register by written notice to the Company requesting such change.
Any notice or written communication required or permitted to be given to the
Holder may be delivered or given by mail to such Holder as shown on the Warrant
Register and at the address shown on the Warrant Register. Until this Warrant is
transferred on the Warrant Register of the Company, the Company may treat the
Holder as shown on the Warrant Register as the absolute owner of this Warrant
for all purposes, notwithstanding any notice to the contrary.
(b) WARRANT AGENT. The Company may, by written notice to the Holder,
appoint an agent for the purpose of maintaining the Warrant Register referred to
in Section 7(a) above, issuing the Series B Preferred Stock or other securities
then issuable upon the exercise of this Warrant, exchanging this Warrant,
replacing this Warrant or any or all of the foregoing. Thereafter, any such
registration, issuance, exchange, or replacement, as the case may be, shall be
made at the office of such agent.
(c) TRANSFERABILITY AND NONNEGOTIABILITY OF WARRANT. This Warrant may not
be transferred or assigned in whole or in part without compliance with all
applicable federal and state securities laws by the transferor and the
transferee (including the delivery of investment representation letters and
legal opinions reasonably satisfactory to the Company, if such are requested by
the Company). Subject to the provisions of this Warrant with respect to
compliance with the Act, title to this Warrant may be transferred by endorsement
(by the Holder executing the Assignment Form attached as Annex II hereto) and
delivery in the same manner as a negotiable instrument transferable by
endorsement and delivery.
(d) EXCHANGE OF WARRANT UPON A TRANSFER. On surrender of this Warrant for
exchange, properly endorsed on the Assignment Form and subject to the provisions
of this Warrant with respect to compliance with the Act and with the limitations
on assignments and transfers and contained in this Section 7, the Company at its
expense shall issue to or on the order of the Holder a new warrant or warrants
of like tenor, in the name of the Holder or as Holder (on payment by the Holder
of any applicable transfer taxes) may direct, for the number of shares issuable
upon exercise hereof.
(e) COMPLIANCE WITH SECURITIES LAWS. The Holder of this Warrant, by
acceptance hereof, acknowledges that this Warrant and the shares of Series B
Preferred Stock or Common Stock to be issued upon exercise hereof or conversion
thereof are being acquired solely for the Holder's own account and not as a
nominee for any party, and for investment, and that the Holder shall not offer,
sell or otherwise dispose of this Warrant or any shares of Series B Preferred
Stock or Common Stock to be issued upon exercise hereof or conversion thereof
except under circumstances that will not result in a violation of the Act or any
state securities laws. Upon exercise of this Warrant and, if applicable,
conversion of the Series B Preferred Stock issued upon exercise hereof, the
Holder shall,
-4-
<PAGE>
if requested by the Company, confirm in writing, in a form satisfactory to the
Company, that the shares of Series B Preferred Stock or Common Stock so
purchased are being acquired solely for the Holder's own account and not as a
nominee for any other party, for investment, and not with a view toward
distribution or resale.
8. RESERVATION OF STOCK. The Company covenants that during the term that
this Warrant is exercisable, the Company shall (A) promptly following the date
hereof, file with the Secretary of State of the State of Delaware an Amended and
Restated Certificate of Incorporation for the Company authorizing the issuance
of the Series B Preferred Stock and containing the rights, privileges and
preferences and described with respect to the Series B Preferred Stock in the
Memorandum of Terms, and (B) reserve (i) from its authorized and unissued Series
B Preferred Stock a sufficient number of shares to provide for the issuance of
Series B Preferred Stock upon the exercise of this Warrant and (ii) from its
authorized and unissued Common Stock a sufficient number of shares of its Common
Stock for issuance on conversion of such Series B Preferred Stock and, from time
to time, shall take all steps necessary to amend its Amended and Restated
Certificate of Incorporation (the "Certificate") to provide sufficient reserves
of shares of Series B Preferred Stock issuable upon exercise of the Warrant and
shares of its Common Stock for issuance on conversion of such Series B Preferred
Stock. The Company further covenants that all shares that may be issued upon
the exercise of rights represented by this Warrant, upon exercise of the rights
represented by this Warrant and payment of the Exercise Price, all as set forth
herein, will be free from all taxes, liens and charges in respect of the issue
thereof (other than taxes in respect of any transfer occurring contemporaneously
or otherwise specified herein). The Company agrees that its issuance of this
Warrant shall constitute full authority to its officers who are charged with the
duty of executing stock certificates to execute and issue the necessary
certificates for shares of Series B Preferred Stock upon the exercise of this
Warrant.
9. NOTICES
(a) Whenever the Exercise Price or number of shares purchasable hereunder
shall be adjusted pursuant to Section 11 hereof, the Company shall issue a
certificate signed by its President or Chief Financial Officer setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated, and the Exercise
Price and number of shares purchasable hereunder after giving effect to such
adjustment, and shall cause a copy of such certificate to be mailed by first-
class mail, postage prepaid, to the Holder of this Warrant.
(b) In the event:
(i) that the Company shall take a record of the holders of its
Common Stock (or other stock or securities at the time receivable upon the
exercise of this Warrant) for the purpose of entitling them to receive any
dividend or other distribution, or any right to subscribe for or purchase any
shares of stock of any class or any other securities, or to receive any other
right; or
(ii) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation, or any conveyance of all
of substantially all of the assets of the Company to another corporation; or
(iii) of any voluntary dissolution, liquidation or winding-up of
the Company,
-5-
<PAGE>
then, and in each such case, the Company shall mail or cause to be mailed to the
Holder or Holders a notice specifying, as the case may be, (A) the date on which
a record is to be taken for the purposed of such dividend, distribution or
right, and stating the amount and character of such dividend, distribution or
right, or (b) the date on which such reorganization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation or winding-up is to
take place, and the time, if any is to be fixed, as of which the holders of
record of Series B Preferred Stock or Common Stock (or such stock or securities
at the time receivable upon the exercise of this Warrant) shall be entitled to
exchange their shares of Series B Preferred Stock or Common Stock (or such other
stock or securities) for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up. Such notice shall be mailed at least 15
days prior to the date therein specified.
(c) In the event that a registration statement is filed with the
Securities and Exchange Commission with respect to a Qualified IPO, the Company
shall mail or cause to be mailed to the Holder or Holders a notice specifying
the expected effective date of such registration statement. Such notice shall be
mailed at least 30 days prior to the expected effective date of such
registration statement.
(d) All such notices, advice and communications shall be deemed to have
been received (i) in the case of personal delivery, on the date of such delivery
and (ii) in the case of mailing, on the third business day following the date of
such mailing.
10. AMENDMENTS
(a) Any term of this Warrant may be amended with the written consent of
the Company and the holders of warrants representing not less than two-thirds
(2/3) of the shares of Series B Preferred Stock issuable upon exercise of any
and all outstanding warrants to purchase Series B Preferred Stock Warrants (the
"Series B Preferred Stock Warrants"), even without the consent of the Holder.
Any amendment effected in accordance with this Section 10 shall be binding upon
each holder of any of the Series B Preferred Stock Warrants, each future holder
of all such Series B Preferred Stock Warrants, and the Company; provided,
--------
however, that no special consideration or inducement may be given to any such
- -------
holder in connection with such consent that is not given ratably to all such
holders, and that such amendment must apply to all such holders equally and
ratably in accordance with the number of shares of Series B Preferred Stock
issuable upon exercise of their Series B Preferred Stock Warrants. The Company
shall promptly give notice to all holders of Series B Preferred Stock Warrants
of any amendment effected in accordance with this Section 10.
(b) No waivers of, or exceptions to, any term, condition or provision of
this Warrant, in any one or more instances, shall be deemed to be, or construed
as, a further or continuing waiver of any such term, condition or provision.
11. ADJUSTMENTS. The Exercise Price and the number of shares purchasable
hereunder are subject to adjustment from time to time as follows:
11.1. CONVERSION OR REDEMPTION OF SERIES B PREFERRED STOCK. Should all of
the Series B Preferred Stock be at any time prior to the expiration of this
Warrant or any portion hereof, redeemed or converted into shares of Common Stock
in accordance with the Certificate, then this Warrant shall immediately become
exercisable for that number of shares of Common Stock equal to the number of
shares of Common Stock that would have been received if this Warrant had been
exercised in full and
-6-
<PAGE>
the shares of Series B Preferred Stock received thereupon had been
simultaneously converted immediately prior to such event, and the Exercise Price
shall be immediately adjusted to equal the quotient obtained by dividing (x) the
aggregate Exercise Price of the maximum number of shares of Series B Preferred
Stock for which this Warrant was exercisable immediately prior to such
conversion or redemption, by (y) the number of shares of Common Stock for which
this Warrant is exercisable after such conversion or redemption. For purposes of
the foregoing, the "Certificate" shall mean the Certificate of Incorporation of
the Company as amended and/or restated and effective immediately prior to the
redemption or conversion of all of the Company's Series B Preferred Stock.
11.2. MERGER, SALE OF ASSETS, ETC. If at any time while this
Warrant or any portion hereof is outstanding and unexpired, there shall be (i) a
reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for therein), (ii) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a reverse triangular merger in which the
Company is the surviving entity but the shares of the Company's capital stock
outstanding immediately prior to the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash, or
otherwise, or (iii) a sale or transfer of the Company's properties and assets
as, or substantially as, an entirety to any other person, then, as a part of
such reorganization, merger, consolidation, sale or transfer, lawful provision
shall be made so that the holder of this Warrant shall thereafter be entitled to
receive upon exercise of this Warrant, during the period specified herein and
upon payment of the Exercise Price then in effect the number of shares of stock
or other securities or property of the successor corporation resulting from such
reorganization, merger, consolidation, sale or transfer that a holder of the
shares deliverable upon exercise of this Warrant would have been entitled to
receive in such reorganization, consolidation, merger, sale or transfer if this
Warrant had been exercised immediately before such reorganization,
consolidation, merger, sale or transfer, all subject to further adjustment, as
provided in this Section 11. The foregoing provisions of this Section 11.2 shall
similarly apply to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other corporation that are
ar the time receivable upon the exercise of this Warrant. If the per-shares
consideration payable to the holder hereof for shares in connection with any
such transaction is in a form other than cash or marketable securities, then the
value of such consideration shall be determined in good faith by the Company's
Board of Directors. In all events, appropriate adjustment (as determined in good
faith by the Company's Board of Directors) shall be made in the application of
the provisions of this Warrant with respect to the rights and interest of this
Warrant shall be applicable after that event, as near as reasonably may be, in
relation to any shares or other property deliverable after that event upon
exercise of this Warrant.
11.3. RECLASSIFICATION. ETC. If the Company, at any time while
this Warrant or any portion hereof remains outstanding and unexpired, by
reclassification of securities or otherwise, shall change any of the securities
as to which purchase rights under this Warrant exist into the same or a
different number of securities of any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities that were subject to the purchase rights under this Warrant
immediately prior to such reclassification or other change and the Exercise
Price therefor shall be appropriately adjusted, all subject to further
adjustment as provided in this Section 11. No adjustment shall be made pursuant
to this Section 11.3 upon any conversion or redemption of the Series B Preferred
Stock which is the subject of Section 11.1.
11.4. SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If the Company
at any time while this Warrant or any portion hereof remains outstanding and
unexpired, shall split, subdivide or combine the
-7-
<PAGE>
securities as to which purchase rights under this Warrant exist, into a
different number of securities of the same class, the Exercise Price for such
securities shall be proportionately decreased in the case of a split or
subdivision or proportionately increased in the case of a combination.
11.5 ADJUSTMENTS FOR DIVIDENDS IN STOCK OR OTHER SECURITIES OR PROPERTY.
If at any time while this Warrant or any portion hereof remains outstanding and
unexpired the holders of the securities as to which purchase rights under this
Warrant exist at the time shall be received, or, on or after the record date
fixed for the determination of eligible Stockholders, shall have become entitled
to receive, without payment therefor, other or additional stock to other
securities or property (other than cash) of the Company by way of dividend, then
and in each case, this Warrant shall represent the right to acquire, in addition
to the number of shares of the security receivable upon exercise of this
Warrant, and without payment of any additional consideration therefor, the
amount of such other or additional stock or other securities or property (other
than cash) of the Company that such holder would hold on the date of such
exercise had it been the holder of record of the security receivable upon
exercise of this Warrant on the date hereof and had thereafter, during the
period from the date hereof to and including the date of such exercise, retained
such shares and/or all other additional stock available by it as aforesaid
during such period, giving effect to all adjustments called for during such
period by the provisions of this Section 11.
11.6 CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 11, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to each Holder of this Warrant a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment and readjustment is based. The Company shall, upon
the written request, at any time, of any such Holder, furnish or cause to be
furnished to such Holder a like certificate setting forth; (i) such adjustments
and readjustments; (ii) the Exercise Prices at the time in effect; and (iii) the
number of shares and the amount, if any, of other property that at the time
would be received upon the exercise of the Warrant.
11.7 NO IMPAIRMENT. The Company shall not, by amendment of its Certificate
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company, but shall at all
times in good faith assist in the carrying out of all the provisions of this
Section 11 and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder of this Warrant against
impairment.
12. REGISTRATION RIGHTS. Upon exercise of this Warrant, the Holder shall have
and be entitled to exercise, together with all holders of Series B Preferred
Stock possessing registration rights to be granted under that certain Series B
Preferred Stock Purchase Agreement (as contemplated by the Memorandum of Terms),
pursuant to which such Series B Preferred Stock is to be issued, the rights of
registration granted under such Series B Preferred Stock Purchase Agreement.
13. GENERAL.
13.1 GOVERNING LAW. This Warrant shall be governed by and construed
according to the laws of the State of Delaware.
-8-
<PAGE>
13.2. DELAYS OR OMISSIONS. No delay or omission to exercise any
right, power, or remedy accruing to either party upon any breach or default
under this Warrant, shall 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 either party of any breach or default under
this Warrant, or any waiver on the part of either party of any provisions or
conditions of this Warrant, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Warrant or by law or otherwise afforded to either of the parties, shall be
cumulative and not alternative.
13.3. REFERENCES. Unless the context otherwise requires, any
reference to a "Section" refers to a section of this Warrant.
13.4. CAPTIONS. Captions of sections have been added only for
convenience and shall not be deemed to be a part of this Warrant.
IN WITNESS WHEREOF, VIROPHARMA, INC. has caused this Warrant to be executed
by its officer thereunto duly authorized.
Dated: March 3, 1995
-------------
HOLDER:
OAK INVESTMENT PARTNERS VI, VIRAPHARMA, INC.
LIMITED PARTNERSHIP
By: OAK ASSOCIATES VI, LIMITED
PARTNERSHIP, its General Partner By: /s/ Claude H. Nash
--------------------
Name: Claude H. Nash
Title: President & CEO
By: /s/ Ann H. Lamont
------------------------------
Name: Ann H. Lamont
Title: General Partner
-9-
<PAGE>
ANNEX I
-------
NOTICE OF EXERCISE
To: VIROPHARMA, INC.
(1) The undersigned hereby irrevocably elects to purchase _____ shares of
Series B Preferred Stock of VIROPHARMA, INC., pursuant to the terms of the
attached Warrant, and tenders herewith payment of the purchase price for such
shares in full.
(2) In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the shares of Series B Preferred Stock or the Common Stock to
be issued upon conversion thereof are being acquired solely for the account of
the undersigned and not as a nominee for any other party, and for investment,
and that the undersigned shall not offer, sell or otherwise dispose of any such
shares of Series B Preferred Stock or Common Stock except under circumstances
that will not result in a violation of the Securities Act of 1933, as amended,
or any state securities laws.
(3) Please issue a certificate or certificates representing said shares of
Series B Preferred Stock, and pay any cash for any fractional share to:
Name Address No. Shares
---- ------- ----------
(4) Please issue a new Warrant for the unexercised portion of the attached
Warrant in the name of the undersigned and/or, if the undersigned has completed
an Assignment Form in the form of Annex II to this Warrant, in such other names
and amounts as is specified in such Assignment Form.
Dated:_____________________ Holder: ___________________________
By: ____________________________________________
Name:
Title:
-10-
<PAGE>
ANNEX II
--------
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of this Warrant hereby
sells, assigns and transfers unto the Assignee named below all of the rights of
the undersigned under the within Warrant, with respect to the number of shares
of Series B Preferred Stock or Common Stock issuable upon conversion thereof set
forth below:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
and does hereby irrevocably constitute and appoint Attorney
_______________________ to make such transfer on the books of VIROPHARMA, INC.,
maintained for such purpose, with full power of substitution in the premises.
The undersigned also represents that, by assignment hereof, the Assignee
acknowledges that this Warrant and the shares of Series B Preferred Stock or
Common Stock to be issued upon exercise hereof or conversion thereof are being
acquired for investment and that the Assignee shall not offer, sell or otherwise
dispose of this Warrant or any shares of stock to be issued upon exercise hereof
or conversion thereof except under circumstances which will not result in a
violation of the Securities Act of 1933, as amended, or any state securities
laws. Further, the Assignee has acknowledged that upon exercise of this Warrant,
the Assignee shall, if requested by the Company, confirm in writing, in a form
satisfactory to the Company, that the shares of stock so purchased are being
acquired for investment and not with a view toward distribution or resale.
Dated: __________________ Holder: __________________
By: ____________________________________________
Name:
Title:
-11-
<PAGE>
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL (WHICH
MAY BE COMPANY COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY THAT
SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933 OR
APPLICABLE STATE SECURITIES LAWS.
WARRANT AGREEMENT
To Purchase Shares of the Series B Preferred Stock of
VIROPHARMA, INC.
Dated as of September 13, 1995 (the "Effective Date")
WHEREAS, ViroPharma, Inc., a Delaware corporation (the "Company") has
entered into a Master Lease Agreement, Equipment Schedules No. VL-1, VL-2,
VL-3 and VL-4, all dated as of September 13, 1995 and related Schedules
(the "Leases") with Comdisco, Inc., a Delaware corporation (the
"Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in
consideration for such Leases, the right to purchase shares of its
Preferred Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Leases and in consideration of mutual covenants and
agreements contained herein, the Company and Warrantholder agree as
follows:
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
----------------------------------------------
The Company hereby grants to the Warrantholder, and the Warrantholder
is entitled, upon the terms and subject to the conditions hereinafter set
forth, to subscribe to and purchase, from the Company, that number of fully
paid and non-assessable shares of the Company's Series B Preferred Stock
("Preferred Stock") equal to $750,000.00 multiplied by 8.5%, the product of
which is divided by the exercise price ("Exercise Price"). The Exercise
Price shall be equal to the sum of $1.00 per share of the Preferred Stock
(the "Last Round") plus the product of (a) the difference between the price
per share of the next round of Venture Capital financing (the "Next Round")
and the Last Round, multiplied by (b) the fraction resulting from dividing
(x) the number of days from the date of closing of the Last Round to the
date of execution of the Leases, by (y) the number of days from the date of
the closing of the Last Round to the date of the closing the Next Round;
provided, however, if the Exercise Price shall be equal to $1.00 per share.
The number and purchase price of such shares are subject to adjustment as
provided in Section 8 hereof.
Prior to the exercise of the right to purchase Preferred Stock set
forth in this Section 1, in the event of an automatic conversion of the
Preferred
<PAGE>
Stock into the Company's Common Stock or in the event that there are no shares
of Preferred Stock outstanding (each, a "Conversion Event"), the right to
subscribe to and purchase Preferred Stock hereunder shall automatically and
without any other action be converted into the right to subscribe to and
purchase such number of shares of the Company's Common Stock as the holder of
this Warrant Agreement would be entitled to receive if the Preferred Stock
purchasable hereunder had been converted into the Company's Common Stock
immediately prior to the occurrence of such Conversion Event.
Notwithstanding anything to the contrary set forth herein, upon the
happening of a Conversion Event, the provisions of Sections 8(d), 8(g) and 8(h)
hereof shall apply to Common Stock in lieu of Preferred Stock.
2. TERM OF THE WARRANT AGREEMENT.
-----------------------------
Except as otherwise provided for herein, the term of this Warrant Agreement
and the right to purchase Preferred Stock as granted herein shall commence on
the Effective Date and shall be exercisable for a period of (i) ten (10) years
or (ii) five (5) years from the effective date of the Company's initial public
offering, whichever is longer.
3. EXERCISE OF THE PURCHASE RIGHTS.
-------------------------------
The purchase rights set forth in this Warrant Agreement are exercisable by
the Warrantholder, in whole or in part, at any time, or from time to time, prior
to the expiration of the term set forth in Section 2 above, by tendering to the
Company at its principal office a notice of exercise in the form attached hereto
as Exhibit I (the "Notice of Exercise"), duly completed and executed. Promptly
upon receipt of the Notice of Exercise and the payment of the purchase price in
accordance with the terms set forth below, and in no event later than twenty-one
(21) days thereafter, the Company shall issue to the Warrantholder a certificate
for the number of shares of Preferred Stock purchased and shall execute the
Notice of Exercise indicating the number of shares which remain subject to
future purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either (i)
by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as
determined below. If the Warrantholder elects the Net Issuance method, the
Company will issue Preferred Stock in accordance with the following formula:
X = Y(A-B)
-------
A
Where: X = the number of shares of Preferred Stock to be issued to the
Warrantholder.
Y = the number of shares of Preferred Stock requested to be
exercised under this Warrant Agreement.
A = the fair market value of one (1) share of Common Stock.
B = the Exercise Price.
2
<PAGE>
As used herein, current fair market value of Common Stock shall mean with
respect to each share of Common Stock:
(i) if the exercise is in connection with an initial public offering,
and if the Company's Registration Statement relating to such public
offering has been declared effective by the SEC, then the initial "Price to
Public" specified in the final prospectus with respect to the offering;
(ii) if this Warrant is exercised after, and not in connection with the
Company's initial public offering, and:
(a) if traded on a securities exchange, the fair market value shall
be deemed to be the average of the closing prices over a twenty-one
(21) day period ending three days before the day the current fair
market value of the securities is being determined; or
(b) if actively traded over-the-counter, the fair market value
shall be deemed to be the average of the closing bid and asked
prices quoted on the NASDAQ system (or similar system) over the
twenty-one (21) day period ending three days before the day the
current fair market value of the securities is being determined;
(iii) if at any time the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market, the
current fair market value of Common Stock shall be the highest price per
share which the Company could obtain from a willing buyer (not a current
employee or director) for shares of Common Stock sold by the Company, from
authorized but unissued shares, as determined in good faith by its Board of
Directors, unless the Company shall become subject to a merger, acquisition
or other consolidation pursuant to which the Company is not the surviving
party, in which case the fair market value of Common Stock shall be deemed
to be the value received by the holders of the Company's Preferred Stock on
a common equivalent basis pursuant to such merger or acquisition.
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number of
shares purchasable hereunder. All other terms and conditions of such amended
Warrant Agreement shall be identical to those contained herein, including, but
not limited to the Effective Date hereof.
4. RESERVATION OF SHARES.
---------------------
(a) Authorization and Reservation of Shares. During the term of this
---------------------------------------
Warrant Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of its Preferred Stock to provide for the exercise
of the rights to purchase Preferred Stock as provided for herein.
(b) Registration or Listing. If any shares of Preferred Stock required to
-----------------------
be reserved hereunder require registration with or approval of any governmental
authority under any Federal or State law (other than any registration under the
1933 Act, as then in effect, or any similar Federal
3
<PAGE>
statute then enforced, or any state securities law, required by reason of any
transfer involved in such conversion), or listing on any domestic securities
exchange, before such shares may be issued upon conversion, the Company will, at
its expense and as expeditiously as possible, use its best efforts to cause such
shares to be duly registered, listed or approved for listing on such domestic
securities exchange, as the case may be.
5. NO FRACTIONAL SHARES OR SCRIP.
-----------------------------
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
------------------------
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
the Warrant.
7. WARRANTHOLDER REGISTRY.
----------------------
The Company shall maintain a registry showing the name and address of the
registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
-----------------
The purchase price per share and the number of shares of Preferred Stock
purchasable hereunder are subject to adjustment, as follows:
(a) Merger and Sale of Assets. If at any time there shall be a capital
-------------------------
reorganization of the shares of the Company's stock (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation when the Company is not the surviving corporation, or the sale of
all or substantially all of the Company's properties and assets to any other
person in combination with the distribution of the proceeds of such sale to
stockholders of the Company (hereinafter referred to as a "Merger Event"), then,
as a part of such Merger Event, lawful provision shall be made so that the
Warrantholder shall thereafter be entitled to receive, upon exercise of the
Warrant, the number of shares of preferred stock or other securities of the
successor corporation resulting from such Merger Event, equivalent in value to
that which would have been issuable if Warrantholder had exercised this Warrant
immediately prior to the Merger Event. In any such case, appropriate adjustment
(as determined in good faith by the Company's Board of Directors) shall be made
in the application of the provisions of this Warrant Agreement with respect to
the rights and interest of the Warrantholder after the Merger Event to the end
that the provisions of this Warrant Agreement (including adjustments of the
Exercise Price and number of shares of Preferred Stock purchasable) shall be
applicable to the greatest extent possible.
(b) Reclassification of Shares. If the Company at any time shall, by
--------------------------
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
4
<PAGE>
Warrant Agreement exist into the same or a different number of securities of any
other class or classes, this Warrant Agreement shall thereafter represent the
right to acquire such number and kind of securities as would have been issuable
as the result of such change with respect to the securities which were subject
to the purchase rights under this Warrant Agreement immediately prior to such
combination, reclassification, exchange, subdivision or other change. If all of
the issued and outstanding Preferred Stock, other than the Preferred Stock
purchasable hereunder, is converted into the Company's Common Stock, then the
Preferred Stock purchasable hereunder shall automatically convert into the
Company's Common Stock.
(c) Subdivision or Combination of Shares. If the Company at any time shall
------------------------------------
combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) Stock Dividends. If the Company at any time shall pay a dividend
---------------
payable in, or make any other distribution (except any distribution specifically
provided for in the foregoing subsections (a) or (b)) of the Company's Preferred
Stock, then the Exercise Price shall be adjusted, from and after the record date
of such dividend or distribution, to that price determined by multiplying the
Exercise Price in effect immediately prior to such record date by a fraction (i)
the numerator of which shall be the total number of all shares of the Company's
Preferred Stock outstanding immediately prior to such dividend or distribution,
and (ii) the denominator of which shall be the total number of all shares of the
Company's Preferred Stock outstanding immediately after such dividend or
distribution. The Warrantholder shall thereafter be entitled to purchase, at the
Exercise Price resulting from such adjustment, the number of shares of Preferred
Stock (calculated to the nearest whole share) obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
shares of Preferred Stock issuable upon the exercise hereof immediately prior to
such adjustment and dividing the product thereof by the Exercise Price resulting
from such adjustment.
(e) Right to Purchase Additional Stock. If, the Warrantholder's total cost
----------------------------------
of equipment leased pursuant to the Leases exceeds $750,000.00, Warrantholder
shall have the right to purchase from the Company, at the Exercise Price
(adjusted as set forth herein), an additional number of shares, which number
shall be determined by (i) multiplying the amount by which the Warrantholder's
total equipment cost exceeds $750,000.00 by 8.5%, and (ii) dividing the product
thereof by the Exercise Price per share referenced above.
(f) Antidilution Rights. Additional antidilution rights applicable to the
-------------------
Preferred Stock purchasable hereunder are as set forth in the Company's
Certificate of Incorporation, as amended through the Effective Date, a true and
complete copy of which is attached hereto as Exhibit ___ (the "Charter"). The
Company shall promptly provide the Warrantholder with any restatement,
amendment, modification or waiver of the Charter. The Company shall provide
Warrantholder with prior written notice of any issuance of its stock or other
equity security to occur after the Effective Date of this Warrant, which notice
shall include (a) the price at which such stock or security is to be sold, (b)
the number of shares to be issued, and (c) such other information as necessary
for Warrantholder to determine if a dilutive event has occurred.
5
<PAGE>
In the event the antidilution rights applicable to the Preferred Stock are
waived with respect to all issued and outstanding Preferred Stock, other than
the Preferred Stock purchasable hereunder, such antidilution rights shall be
deemed to be waived with respect to the Preferred Stock purchasable hereunder.
(g) Notice of Adjustments. If: (i) the Company shall declare any dividend
---------------------
or distribution upon its Preferred Stock, whether in cash, property, stock or
other securities; (ii) the Company shall offer for subscription prorata to the
holders of its Preferred Stock; (iii) there shall be any Merger Event; or (iv)
there shall be any voluntary or involuntary dissolution, liquidation or winding
up of the Company; then, in connection with each such event, the Company shall
send to the Warrantholder: (A) at least twenty (20) days' prior written notice
of the date on which the books of the Company shall close or a record shall be
taken for such dividend, distribution, subscription rights (specifying the date
on which the holders of Preferred Stock shall be entitled thereto) or for
determining rights to vote in respect of such Merger Event, dissolution,
liquidation or winding up; and (B) in the case of any such Merger Event,
dissolution, liquidation or winding up, at least twenty (20) days' prior written
notice of the date when the same shall take place (and specifying the date on
which the holders of Preferred Stock shall be entitled to exchange their
Preferred Stock for securities or other property deliverable upon such Merger
Event, dissolution, liquidation or winding up). In the case of a public
offering, the Company shall give Warrantholder at least twenty (20) days written
notice prior to the effective date thereof.
Each such written notice shall set forth, in reasonable detail, (i) the
event requiring the adjustment, (ii) the amount of the adjustment, (iii) the
method by which such adjustment was calculated, (iv) the Exercise Price, and (v)
the number of shares subject to purchase hereunder after giving effect to such
adjustment, and shall be given by first class mail, postage prepaid, addressed
to the Warrantholder, at the address as shown on the books of the Company.
(h) Timely Notice. Failure to timely provide such notice required by
-------------
subsection (g) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained in
any insufficient notice received by Warrantholder. The notice period shall begin
on the date Warrantholder actually receives a written notice containing all the
information specified above.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
--------------------------------------------------------
(a) Reservation of Preferred Stock. The Preferred Stock issuable upon
------------------------------
exercise of the Warrantholder's rights has been duly and validly reserved and,
when issued in accordance with the provisions of this Warrant Agreement, will be
validly issued, fully paid and non-assessable, and will be free of any taxes,
liens, charges or encumbrances of any nature whatsoever; provided, however, that
the Preferred Stock issuable pursuant to this Warrant Agreement may be subject
to restrictions on transfer under state and/or Federal securities laws. The
Company has made available to the Warrantholder true, correct and complete
copies of its Charter and Bylaws, as amended, and minutes of all Board of
Directors (including all committees of the Board of Directors, if any) and
Shareholder meetings from _________, 19__ through _______, 19__. The issuance of
certificates for shares of Preferred Stock upon exercise of
6
<PAGE>
the Warrant Agreement shall be made without charge to the Warrantholder for any
issuance tax in respect thereof, or other cost incurred by the Company in
connection with such exercise and the related issuance of shares of Preferred
Stock. The Company shall not be required to pay any tax which may be payable in
respect of any transfer involved and the issuance and delivery of any
certificate in a name other than that of the Warrantholder.
(b) Due Authority. The execution and delivery by the Company of this
-------------
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Preferred Stock, have been duly authorized by all necessary corporate
action on the part of the Company, and the Leases and this Warrant Agreement are
not inconsistent with the Company's Charter or Bylaws, do not contravene any law
or governmental rule, regulation or order applicable to it, do not and will not
contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument to which it is a party or by which it is
bound, and the Leases and this Warrant Agreement constitute legal, valid and
binding agreements of the Company, enforceable in accordance with their
respective terms.
(c) Consents and Approvals. No consent or approval of, giving of notice
----------------------
to, registration with, or taking of any other action in respect of any state,
Federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its obligations under
this Warrant Agreement, except for the filing of notices pursuant to Regulation
D under the 1933 Act and Section 4(G) of the Illinois Corporate Securities Law,
which filings will be effective by the time required thereby.
(d) Issued Securities. All issued and outstanding shares of Common Stock,
-----------------
Preferred Stock or any other securities of the Company have been duly authorized
and validly issued and are fully paid and nonassessable. All outstanding shares
of Common Stock, Preferred Stock and any other securities were issued in full
compliance with all Federal and state securities laws. In addition:
(i) The authorized capital of the Company consists of (A) 12,790,000
shares of Common Stock, of which 1,625,000 shares are issued and outstanding,
and (B) 10,315,000 shares of preferred stock, including (1) 675,000 authorized
shares of Series A Convertible Preferred Stock, all of which are issued and
outstanding and are convertible into shares of Common Stock at $0.50 per share,
and (2) 7,283,744 authorized shares of Series B Convertible Preferred Stock, of
which 7,060,000 are issued and outstanding and are convertible into shares of
Common Stock at $1.00 per share.
(ii) The Company has reserved 850,000 shares of Common Stock for issuance
under its 1995 Stock Option Plan, under which 626,000 options are outstanding at
an average price of $0.05 per share. Except for a warrant exercisable for the
purchase of 159,994 shares of Series B Preferred Stock at $1.00 per share, there
are no other options, warrants, conversion privileges or other rights presently
outstanding to purchase or otherwise acquire any authorized but unissued shares
of the Company's capital stock or other securities of the Company.
7
<PAGE>
(iii) In accordance with the Company's Articles of Incorporation, no
shareholder of the Company has preemptive rights to purchase new issuances of
the Company's capital stock.
(e) Insurance. The Company has in full force and effect insurance
---------
policies, with extended coverage, insuring the Company and its property and
business against such losses and risks, and in such amounts, as are customary
for corporations engaged in a similar business and similarly situated and as
otherwise may be required pursuant to the terms of any other contract or
agreement.
(f) Other Commitments to Register Securities. Except as set forth in this
-----------------------------------------
Warrant Agreement, the Company is not, pursuant to the terms of any other
agreement currently in existence, under any obligation to register under the
1933 Act any of its presently outstanding securities or any of its securities
which may hereafter be issued.
(g) Exempt Transaction. Subject to the accuracy of the Warrantholder's
------------------
representations in Section 10 hereof, the issuance of the Preferred Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act, in reliance upon Section
4(2) thereof, and (ii) the qualification requirements of the Illinois Corporate
Securities Law, in reliance upon Section 4(G) thereof.
(h) Compliance with Rule 144. Upon and after such time as the Company has
------------------------
a class of equity securities registered under the Securities Exchange Act of
1934, as amended, at the written request of the Warrantholder, who proposes to
sell Preferred Stock issuable upon the exercise of the Warrant in compliance
with Rule 144 promulgated by the Securities and Exchange Commission, the Company
shall furnish to the Warrantholder, within ten days after receipt of such
request, a written statement confirming the Company's compliance with the
current public information filing requirements of the Securities and Exchange
Commission as set forth in such Rule, as such Rule may be amended from time to
time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
--------------------------------------------------
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder:
(a) Investment Purpose. The right to acquire Preferred Stock or the
------------------
Preferred Stock issuable upon exercise of the Warrantholder's rights contained
herein will be acquired for investment and not with a view to the sale or
distribution of any part thereof, and the Warrantholder has no present intention
of selling or engaging in any public distribution of the same except pursuant to
a registraton or exemption.
(b) Private Issue. The Warrantholder understands (i) that the Preferred
-------------
Stock issuable upon exercise of this Warrant is not registered under the 1933
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representation set
forth in this Section 10.
8
<PAGE>
(c) Disposition or Warrantholder's Rights. In no event will the
-------------------------------------
Warrantholder make a disposition of any of its rights to acquire Preferred Stock
or Preferred Stock issuable upon exercise of such rights unless and until (i) it
shall have notified the Company of the proposed disposition, and (ii) if
requested by the Company, it shall have furnished the Company with an opinion of
counsel (which counsel may either be inside or outside counsel to the
Warrantholder) satisfactory to the Company and its counsel to the effect that
(A) appropriate action necessary for compliance with the 1933 Act has been
taken, or (B) an exemption from the registration requirements of the 1933 Act is
available. Notwithstanding the foregoing, the restrictions imposed upon the
transferability of any of its rights to acquire Preferred Stock or Preferred
Stock issuable on the exercise of such rights do not apply to transfers from the
beneficial owner of any of the aforementioned securities to its nominee or from
such nominee to its beneficial owner, and shall terminate as to any particular
share of Preferred Stock when (1) such security shall have been effectively
registered under the 1933 Act and sold by the holder thereof in accordance with
such registration or (2) such security shall have been sold without registration
in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been
issued to the Warrantholder at its request by the staff of the Securities and
Exchange Commission or a ruling shall have been issued to the Warrantholder at
its request by such Commission stating that no action shall be recommended by
such staff or taken by such Commission, as the case may be, if such security is
transferred without registration under the 1933 Act in accordance with the
conditions set forth in such letter or ruling and such letter or ruling
specifies that no subsequent restrictions on transfer are required. Whenever the
restrictions imposed hereunder shall terminate, as hereinabove provided, the
Warrantholder or holder of a share of Preferred Stock then outstanding as to
which such restrictions have terminated shall be entitled to receive from the
Company, without expense to such holder, one or more new certificates for the
Warrant or for such shares or Preferred Stock not bearing any restrictive
legend.
(d) Financial Risk. The Warrantholder has such knowledge and experience
--------------
in financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.
(e) Risk of No Registration. The Warrantholder understands that if the
-----------------------
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the 1933 Act, or file reports pursuant to Section 15(d), of the
Securities Exchange Act of 1934 (the "1934 Act"), or if a registration statement
covering the securities under the 1933 Act is not in effect when it desires to
sell (i) the rights to purchase Preferred Stock pursuant to this Warrant
Agreement, or (ii) the Preferred Stock issuable upon exercise of the right to
purchase, it may be required to hold such securities for an indefinite period.
The Warrantholder also understands that any sale of its rights of the
Warrantholder to purchase Preferred Stock or Preferred Stock which might be made
by it in reliance upon Rule 144 under the 1933 Act may be made only in
accordance with the terms and conditions of that Rule.
11. TRANSFERS. Subject to the terms and conditions contained in Section 10
---------
hereof, this Warrant Agreement and all rights hereunder are transferable in
whole or in part by the Warrantholder and any successor transferee, provided,
9
<PAGE>
however, in no event shall the number of transfers of the rights and interests
in all of the Warrants exceed three (3) transfers. The transfer shall be
recorded on the books of the Company upon receipt by the Company of a notice of
transfer in the form attached hereto as Exhibit II (the "Transfer Notice"), at
its principal offices and the payment to the Company of all transfer taxes and
other governmental charges imposed on such transfer.
12. MISCELLANEOUS.
-------------
(a) Effective Date. The provisions of this Warrant Agreement shall be
--------------
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on the date hereof. This Warrant Agreement shall
be binding upon any successors or assigns of the Company.
(b) Attorney's Fees. In any litigation, arbitration or court proceeding
---------------
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant Agreement.
(c) Governing Law. This Warrant Agreement shall be governed by and
-------------
construed for all purposes under and in accordance with the laws of the State of
Illinois.
(d) Counterparts. This Warrant Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(e) Notices. Any notice required or permitted hereunder shall be given in
-------
writing and shall be deemed effectively given upon personal delivery, facsimile
transmission (provided that the original is sent by personal delivery or mail
as hereinafter set forth) or seven (7) days after deposit in the United States
mail, by registered or certified mail, addressed (i) to the Warrantholder at
6111 North River Road, Rosemont, Illinois 60018, attention: James Labe, Venture
Lease, cc: Legal Department, (and/or, if by facsimile, (708) 518-5465 and (ii)
to the Company at 1250 S. Collegeville Road, P.O. Box 5000, Collegeville,
Pennsylvania 19426, (and/or if by facsimile, (610) 983-5301 or at such other
address as any such party may subsequently designate by written notice to the
other party.
(f) Remedies. In the event of any default hereunder, the non-defaulting
--------
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default, and/or an action for specific performance for any
default where Warrantholder will not have an adequate remedy at law and where
damages will not be readily ascertainable. The Company expressly agrees that it
shall not oppose an application by the Warrantholder or any other person
entitled to the benefit of this Agreement requiring specific performance of any
or all provisions hereof or enjoining the Company from continuing to commit any
such breach of this Agreement.
(g) No Impairment of Rights. Except for the automatic conversion of the
-----------------------
right to acquire Preferred Stock into the right to acquire Common Stock, as set
forth in the second paragraph of Section 1 hereof, the Company will not, by
amendment of its Charter or through any other means, avoid or seek to
10
<PAGE>
avoid the observance or performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all such terms and
in the taking of all such actions as may be necessary or appropriate in order to
protect the rights of the Warrantholder against impairment.
(h) Survival. The representations, warranties, covenants and condition of
--------
the respective parties contained herein or made pursuant to this Warrant
Agreement shall survive the execution and delivery of this Warrant Agreement.
(i) Severability. In the event any one or more of the provisions of this
------------
Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision, which
comes closest to the intention of the parties underlying the invalid, illegal or
unenforceable provision.
(j) Amendments. Any provision of this Warrant Agreement may be amended by
----------
a written instrument signed by the Company and by the Warrantholder.
(k) Additional Documents. The Company, upon execution of this Warrant
--------------------
Agreement, shall provide the Warrantholder with certified resolutions with
respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d), (f) and (g) of Section 9 above. If the purchase
price for the Leases referenced in the preamble of this Warrant Agreement
exceeds $1,000,000 the Company will also provide Warrantholder with an opinion
from the Company's counsel with respect to those same representations,
warranties and covenant. The Company shall also supply such other documents as
the Warrantholder may from time to time reasonably request.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be executed by its officers thereunto duly authorized as of the Effective
Date.
Company: VIROPHARMA, INCORPORATED
By: /s/ Claude H. Nash
---------------------------------
Title: President & CEO
------------------------------
Warrantholder: COMDISCO, INC.
By: [SIGNATURE NOT LEGIBLE]
-----------------------------------
Title: [SIGNATURE NOT LEGIBLE]
--------------------------------
11
<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
To: __________________________
(1) The undersigned Warrantholder hereby elects to purchase _________ shares of
the Preferred Stock of _______________, pursuant to the terms of the
Warrant Agreement dated the _____ day of _____________________, 19__ (the
"Warrant Agreement") between _____________________________ and the
Warrantholder, and tenders herewith payment of the purchase price for such
shares in full, together with all applicable transfer taxes, if any.
(2) In exercising its rights to purchase the Preferred Stock of
____________________________, the undersigned hereby confirms and
acknowledges the investment representations and warranties made in Section
10 of the Warrant Agreement.
(3) Please issue a certificate or certificates representing said shares of
Preferred Stock in the name of the undersigned or in such other name as is
specified below.
____________________________________
(Name)
____________________________________
(Address)
Warrantholder: COMDISCO, INC.
By: ________________________________
Title: _____________________________
Date: ______________________________
12
<PAGE>
ACKNOWLEDGMENT OF EXERCISE
The undersigned ___________________________, hereby acknowledge receipt of
the "Notice of Exercise" from Comdisco, Inc., to purchase ______ shares of the
Preferred Stock of _________________, pursuant to the terms of the Warrant
Agreement, and further acknowledges that ______ shares remain subject to
purchase under the terms of the Warrant Agreement.
Company:
By:___________________________
Title: _______________________
Date: ________________________
13
<PAGE>
EXHIBIT II
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute
this form and supply required information. Do not use this form
to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to
________________________________________________________________________________
(Please Print)
whose address is _______________________________________________________________
________________________________________________________________________________
Dated ___________________________________________________________
Holder's Signature ______________________________________________
Holder's Address ________________________________________________
_________________________________________________________________
Signature Guaranteed: __________________________________________________________
NOTE: The signature to this Transfer Notice must correspond with
the name as it appears on the face of the Warrant
Agreement, without alteration or enlargement or any change
whatever. Officers of corporations and those acting in a
fiduciary or other representative capacity should file
proper evidence of authority to assign the foregoing
Warrant Agreement.
14
<PAGE>
- --------------------------------------------------------------------------------
VIROPHARMA, INC.
AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
May 31, 1996
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1 RESTRICTIONS ON TRANSFER; REGISTRATION RIGHTS............................ 1
1.1 Restrictions on Transfer................................................. 1
1.2 Certain Definitions...................................................... 1
1.3 Restrictive Legend....................................................... 5
1.4 Notice of Proposed Transfers............................................. 6
1.5 Holder's Requested Registration.......................................... 7
1.7 Form S-3 Registration.................................................... 11
1.9 Lock-up.................................................................. 13
1.10 Registration Procedures.................................................. 13
1.11 Indemnification.......................................................... 15
1.12 Information by Holder.................................................... 17
1.13 Rule 144 Reporting....................................................... 17
1.14 Limitation on Subsequent Registrations................................... 18
1.15 Termination of Registration Rights....................................... 18
SECTION 2 COVENANTS OF THE COMPANY................................................. 19
2.1 Financial Information.................................................... 19
2.2 Additional Information and Rights........................................ 20
2.3 Termination of Financial Information Rights.............................. 20
2.4 Inventions and Non-Disclosure Agreements................................. 20
2.5 Employee and Other Stock Arrangements.................................... 20
2.6 Books of Account and Reserves............................................ 21
2.7 Stock Fully Paid; Reservation of Shares.................................. 21
2.8 Replacement of Certificates Representing Preferred Shares................ 21
2.9 Maintenance of Small Business Stock Status............................... 21
SECTION 3 RIGHTS OF FIRST OFFER.................................................... 22
3.1 Rights of First Offer to First Offerees.................................. 22
3.2 Calculation of Number of Shares of Conversion Stock Held or Outstanding.. 23
3.3 Notices With Respect to Proposed Issuance of New Securities.............. 23
3.4 Company's Right to Complete Proposed Sale of New Securities to
the Extent Rights of First Offer are Not Exercised....................... 23
3.5 Expiration of Rights of First Offer...................................... 24
SECTION 4 RIGHTS OF CO-SALE........................................................ 24
4.1 Calculation of Conversion Stock.......................................... 24
4.2 Third Party Offers....................................................... 24
4.3 Right of Co-Sale......................................................... 24
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
4.4 Put Option After Prohibited Transfers.................................... 26
4.5 Exempt Transfers......................................................... 27
4.6 Termination of Rights.................................................... 27
SECTION 5 MISCELLANEOUS............................................................ 28
5.1 Waiver of "Pay-to-Play".................................................. 28
5.2 Governing Law............................................................ 28
5.3 Successors and Assigns, Assignment of Rights............................. 28
5.4 Entire Agreement; Amendment; Waiver...................................... 29
5.5 Notices, etc............................................................. 29
5.6 Delays or Omissions...................................................... 29
5.7 Rights; Separability..................................................... 30
5.8 Information Confidential................................................. 30
5.9 Titles and Subtitles..................................................... 30
5.10 Counterparts............................................................. 30
5.11 Aggregation of Stock..................................................... 30
5.12 No Third Party Beneficiaries............................................. 30
5.13 Remedies................................................................. 30
</TABLE>
-ii-
<PAGE>
VIROPHARMA, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
This Amended and Restated Investors' Rights Agreement (this "Agreement") is
made and entered into as of the 30th day of May, 1996, by and among VIROPHARMA,
INC., a Delaware corporation (the "Company"), the persons identified on Schedule
A attached hereto (the "Purchasers"), the persons identified on Schedule B
attached hereto (the "Existing Investors") and each of the persons identified on
the "Schedule of Founders" attached hereto as Exhibit B (the "Founders").
WHEREAS, the Existing Investors and the Founders are parties to an
Investors' Rights Agreement dated June 16, 1995, (the "Original Agreement"); and
WHEREAS, the Existing Investors and the Founders desire to amend and
restate the Original Agreement; and
WHEREAS, the Purchasers are parties to the Series C Preferred Stock
Purchase Agreement dated as of May 30, 1996 between the Company and the
Purchasers (the "Series C Agreement"), certain of the Company's and such
Purchasers' obligations under which are conditioned upon the execution and
delivery by such Purchasers, the Founders and the Company of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties hereto agree as follows:
SECTION 1
RESTRICTIONS ON TRANSFER; REGISTRATION RIGHTS
---------------------------------------------
1.1 Restrictions on Transfer. No Restricted Securities (as defined below)
------------------------
shall be sold, assigned, transferred, or pledged by any Holder except upon the
conditions specified in this Section 1 and Section 4 hereof, which conditions
are intended to, among other things, ensure compliance with the provisions of
the Securities Act. Each Holder shall cause any proposed transferee of the
Restricted Securities held by a Holder or Founder to agree in writing to take
and hold such securities subject to the provisions and upon the conditions
specified in this Section 1 and Sections 3.1 and 3.8 and Section 4 hereof.
1.2 Certain Definitions. As used in this Agreement, the following
-------------------
definitions shall apply:
"Commission" means the Securities and Exchange Commission or any other
----------
federal agency at the time administering the Securities Act.
<PAGE>
"Common Stock" shall mean the Company's common stock, par value $0.001
------------
per share.
"Conversion Stock" shall mean the shares of Common Stock issued or
----------------
issuable upon conversion of the Company's issued and outstanding Series A
Shares, Series B Shares or Series C Shares, in any case together with any
securities issued or issuable, directly or indirectly, in respect of such
securities upon any stock split, stock dividend, recapitalization or the like.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
or any similar successor federal statute and the rules and regulations
promulgated thereunder, all as the same shall be in effect from time to time.
"Founders" shall mean Nash (but only in his capacity as a holder of
--------
Common Stock other than Conversion Stock), those persons identified on the
Schedule of Founders attached hereto as Exhibit B (but only in their respective
capacities as holders of Common Stock other than Conversion Stock), together
with the Key Employees from time to time becoming signatories hereto.
"Founders' Stock" shall mean, collectively, (i) any Common Stock
---------------
(other than Conversion Stock) held by a Founder or Nash, and (ii) any Common
Stock held by a Key Employee who shall become a signatory hereto, together with
any securities issued or issuable, directly or indirectly, in respect of such
securities upon any stock split, stock dividend, recapitalization or the like;
provided, however, that Founders' Stock shall not include any shares of Common
- -------- -------
Stock which have previously been registered or sold to the public.
"Holder" means any Existing Investor or Purchaser who holds
------
Registrable Securities, and any holder of Registrable Securities to whom the
registration rights conferred by this Agreement have been transferred pursuant
to Section 5.3 hereof.
"Initiating Holders" means any Holders of the outstanding Registrable
------------------
Securities who shall, in the case of (i) the first registration requested
pursuant to Section 1.5(a) hereof consist of Holders of not less than 51% of the
then outstanding Registrable Securities, and (ii) the second registration
requested pursuant to Section 1.5(a) shall consist or Holders of not less than
25% of the then outstanding Registrable Securities.
"Key Employee" shall mean those key employees of the Company (with
------------
regard to Nash only as to shares issued after the date hereof) to whom the Board
of Directors agrees to grant registration rights hereunder pursuant to
resolution of the Board of Directors of the Company (whether at a meeting
thereof or by written consent in lieu thereof), provided, however, that such
-------- -------
person being granted rights as a "Key Employee" becomes a signatory to this
Agreement, agreeing to be bound by the terms and provisions hereof, including
Section 4 hereof.
-2-
<PAGE>
"Limitation Period" shall mean the period of time beginning on the
-----------------
Closing Date (as that term is defined in the Series C Agreement) and ending on
the date on which no Purchaser (or any person who acquires any stock described
in clauses (i), (ii), or (iii) below in a transfer described in Section
1202(h)(2) of the Code) owns (i) any capital stock of the Company; (ii) any
Conversion Stock; or (iii) any capital stock of the Company or of any other
corporation acquired in a transaction described in Section 1202(h)(4) of the
Code.
"Nash" shall mean Dr. Claude Nash.
----
"New Securities" shall mean any shares of capital stock or other
--------------
equity securities (or debt securities convertible into such equity securities)
of the Company, whether now authorized or not, and rights, options or warrants
to purchase said shares of capital stock and securities of any type whatsoever
that are, or may become, convertible into said shares of capital stock or other
equity securities: provided, however, that the term "New Securities" shall not
-------- -------
include (i) securities issued upon conversion of the Series A Shares, Series B
Shares or Series C Shares, (ii) the Series C Shares purchased or issued pursuant
to the Series C Agreement, (iii) Series B Shares issued upon exercise of any
Series B Warrants (as defined below), (iv) securities issued pursuant to the
acquisition of another corporation by the Company or issued in connection with
any corporate Partnering transactions approved by the Board of Directors or any
merger, consolidation, combination, purchase of all or substantially all of the
assets or other reorganization which shall be approved by the Board of Directors
of the Company, (v) securities issued pursuant to any rights or agreements,
including without limitation convertible securities, provided that the rights of
first offer established by Section 3 hereof apply with respect to the initial
sale or grant by the Company of such rights or agreements (other than the rights
or agreements described in subsections (vii) and (viii) of this definition),
(vi) securities issued in connection with any stock split, stock dividend or
recapitalization of the Company, (vii) securities, not to exceed 1,500,000
shares, issued to employees, consultants, officers or directors of the Company
pursuant to any stock option, stock purchase or stock bonus plan, agreement or
arrangement for the primary purpose of soliciting or retaining such employees,
consultants, officers or directors services and which are outstanding on the
date hereof or are hereafter approved by the Board of Directors, (viii)
warrants, options or other rights to purchase securities issued in connection
with obtaining bank or lease financing, whether issued to a financial lender,
lessor, guarantor or other person, (ix) securities issued in a firm commitment
underwritten public offering pursuant to an effective registration statement
under the Securities Act, covering the offer and sale of securities for the
account of the Company and/or selling shareholders to the public, or (x)
securities issued by the Company in connection with a corporate partnering or
other research and development, licensing, marketing or other transaction
approved by the Board of Directors of the Company.
"Preferred Shares" shall mean the Series A Shares, the Series B Shares
----------------
and the Series C Shares.
-3-
<PAGE>
"Pro Rata Portion" shall mean, with respect to each Holder, that
----------------
number of shares of New Securities as is equal to the product of (i) the total
number of New Securities proposed to be issued multiplied by (ii) a fraction,
the numerator of which is the number of shares of Conversion Stock held by such
First Offeree (as defined in Section 3.1(a)) computed as set forth in Section
3.2 hereof, but without regard to such Holder's Non-Qualifying Shares or
Conversion Stock related thereto, and the denominator of which is the total
number of shares of Conversion Stock which are outstanding as of such date
(computed as set forth in Section 3.2 hereof) but without regard to any Non-
Qualifying Shares or Conversion Stock related thereto. For purposes of this
definition of "Pro Rata Portion," the calculations contemplated by Section 3.2
hereof shall give effect to the applicable issuance of New Securities and shall
assume the participation of all Holders in such issuance of New Securities.
"Qualified Offering" shall mean a firm commitment underwritten public
------------------
offering pursuant to an effective registration statement under the Securities
Act covering the offer and sale of Common Stock for the account of the Company
and/or selling shareholders at a price per share of not less than $5.00 per
share (as adjusted for stock splits, reverse stock splits, and the like effected
after the date of this Agreement) and resulting in aggregate net proceeds to the
Company and/or selling shareholders (after deducting underwriters' discounts and
expenses relating to the issuance) of not less than $15,000,000.
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 any post-effective amendments filed or
required to be filed), and the declaration or ordering of the effectiveness of
such registration statement.
"Restated Certificate" shall mean the Company's Amended and Restated
--------------------
Certificate of Incorporation, as amended through the date hereof.
"Registrable Securities" means the Conversion Stock; provided,
---------------------- --------
however, that Registrable Securities shall not include any shares of Common
- -------
Stock which have previously been registered or sold to the public.
"Registration Expenses" means all expenses incurred by the Company in
---------------------
complying with Sections 1.5, 1.6 and 1.7, 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,
and 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). Registration Expenses shall
not include: selling commissions, discounts or other compensation paid to
underwriters or other agents or brokers to effect the sale or fees and
disbursements of counsel for any Holders or Founders.
-4-
<PAGE>
"Restricted Securities" means the securities of the Company required
---------------------
to bear the legend set forth in Section 1.3.
"Rule 145" means Rule 145 promulgated under the Securities Act, or any
--------
similar successor rule, as the same shall be in effect from time to time.
"Rule 415" means Rule 415 promulgated under the Securities Act, or any
--------
similar successor rule, as the same shall be in effect from time to time.
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
similar federal statute and the rules and regulations of the Commission
thereunder, as shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts, selling
----------------
commissions, stock transfer taxes applicable to the sale of Registrable
Securities and fees and disbursements of counsel for any Holders.
"Series A Shares" shall mean the Company's Series A Convertible
---------------
Preferred Stock, par value $0.001 per share.
"Series B Shares" shall mean the Company's Series B Convertible
---------------
Preferred Stock, par value $0.001 per share.
"Series C Shares" shall mean the Company's Series C Convertible
---------------
Preferred Stock, par value $0.001 per share.
"Series B Warrants" shall mean all of the Warrants to Purchase Series
-----------------
B Shares, represented by Warrant Certificate Nos. WB-1 through WB-7, issued by
the Company and outstanding as of the date hereof.
1.3 Restrictive Legend. (a) Each certificate representing (i) the Series
------------------
A Shares, (ii) Series B Shares, (iii) the Series C Shares, (iv) the Conversion
Stock, (v) Founders' Stock, or (vi) any other securities issued or issuable,
directly or indirectly, in respect of any of the foregoing securities upon any
stock split, stock dividend, recapitalization, merger, consolidation or similar
event, shall (unless otherwise permitted by the provisions of Section 1.4
hereof) be stamped or otherwise imprinted with legends in substantially the
following form (in addition to any legend(s) required hereunder or under
applicable state securities laws):
THE SALE AND ISSUANCE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR UNDER THE SECURITIES LAW OF ANY STATE OR OTHER JURISDICTION.
THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO,
OR IN
-5-
<PAGE>
CONNECTION WITH, THE DISTRIBUTION THEREOF. THESE SECURITIES MAY NOT BE
OFFERED, SOLD, PLEDGED, OR TRANSFERRED UNLESS (I) A REGISTRATION STATEMENT
UNDER THE ACT IS IN EFFECT AS TO THESE SECURITIES AND SUCH OFFER, SALE,
PLEDGE, OR TRANSFER IS IN COMPLIANCE WITH APPLICABLE SECURITIES LAW OF ANY
STATE OR OTHER JURISDICTION OR (II) THERE IS AN OPINION OF COUNSEL OR OTHER
EVIDENCE, SATISFACTORY TO THE CORPORATION, THAT AN EXEMPTION THEREFROM IS
AVAILABLE AND THAT SUCH OFFER, SALE, PLEDGE, OR TRANSFER IS IN COMPLIANCE
WITH APPLICABLE SECURITIES LAW OF ANY STATE OR OTHER JURISDICTION.
FURTHERMORE, THE SALE, PLEDGE, HYPOTHECATION, TRANSFER OR OTHER DISPOSITION
OF THESE SECURITIES ARE RESTRICTED PURSUANT TO THE TERMS OF AN AMENDED AND
RESTATED INVESTORS' RIGHTS AGREEMENT (THE "RIGHTS AGREEMENT") AMONG THE
CORPORATION, THE HOLDER OF THIS CERTIFICATE AND OTHER HOLDERS OF THE
COMPANY'S SECURITIES. COPIES OF THE RIGHTS AGREEMENT MAY BE OBTAINED AT NO
COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO
THE SECRETARY OF THE CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICES OF THE
CORPORATION.
Each Holder, each Founder, each Existing Investor, each Purchaser and any
subsequent holder of any Series A Shares, Series B Shares, Series C Shares,
Conversion Stock, and/or Founders' Stock consents to the Company making a
notation on its records and giving instructions to any transfer agent of the
Restricted Securities in order to implement the restrictions on transfer
described in this Section 1.3.
(b) The Company shall be obligated to reissue promptly certificates
without the foregoing legend at the request of any holder thereof if the holder
shall have obtained an opinion of counsel (which counsel may be counsel to the
Company) reasonably acceptable to the Company to the effect that the securities
proposed to be disposed of may lawfully be so disposed of without registration,
qualification or legend. Any legend endorsed on an instrument pursuant to
applicable state securities laws and the stop-transfer instructions with respect
to such securities shall be removed upon receipt by the Company of an order of
the appropriate blue sky authority authorizing such removal or an opinion of
counsel reasonably satisfactory to the Company to the effect that any such
applicable state securities legends or stop-transfer instructions are not
required and may be removed.
1.4 Notice of Proposed Transfers. Prior to any proposed transfer of any
----------------------------
Restricted Securities, unless there is in effect a registration statement under
the Securities Act covering the proposed transfer, the holder thereof shall give
written notice (the "Notice") to the Company of such holder's intention to make
such transfer. The Notice shall describe the manner and circumstances of the
proposed transfer in sufficient detail, and shall be
-6-
<PAGE>
accompanied by a written opinion of legal counsel who shall be reasonably
satisfactory to the Company, addressed to the Company and reasonably
satisfactory in form and substance to the Company's counsel, to the effect that
the proposed transfer of the Restricted Securities may be effected without
registration under the Securities Act; provided, however, that for transactions
-------- -------
made pursuant to Rule 144 under the Securities Act, an opinion of counsel shall
only be required if reasonably requested by the company and which shall be to
the effect that the proposed transfer of the Restricted Securities may be
effected without registration under the Securities Act. Notwithstanding the
foregoing provisions of this Section 1.4, no such registration statement or
opinion of counsel shall be necessary for a transfer by a holder which is (A) a
partnership to its partners or retired partners in accordance with partnership
interests, or to another affiliated partnership under common control with such
partnership, or (B) an individual to a family member or trust for the benefit of
such individual or a family member, provided in the case of either (A) or (B)
that the transferee will be subject to the terms of this Section 1 to the same
extent as if he were an original holder hereunder. Each certificate evidencing
the Restricted Securities so transferred shall bear the appropriate restrictive
legends set forth in Section 1.3, except that such certificate shall not bear
such restrictive legends if in the opinion of counsel for the Company such
legends are not required in order to establish compliance with any provisions of
the securities laws.
1.5 Holder's Requested Registration.
-------------------------------
(a) Request for Registration. In case the Company shall receive from
------------------------
Initiating Holders, at any time after the earlier to occur of (i) January 1,
2002, and (ii) six months from and after the closing of the Company's first
Qualified Offering of Common Stock to the general public which is effected
pursuant to a registration statement filed with and declared effective by, the
Commission under the Securities Act (the "Initial Offering"), a written request
that the Company effect any underwritten registration, qualification, or
compliance with respect to Registrable Securities held by such Initiating
Holders, then the Company shall:
(i) promptly give written notice of the proposed registration,
qualification, or compliance to all other Holders; and
(ii) as soon as practicable, use its most diligent efforts to
effect such registration, qualification, or compliance (including, without
limitation, the execution of an undertaking to file post-effective amendments,
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 Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holders
joining in such request as are specified in a written request received by the
Company within 20 days after the date the Company mails such written notice.
-7-
<PAGE>
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 1.5:
(A) In any 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) 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 one
hundred eighty (180) days 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;
(C) Unless the aggregate gross offering price thereof to the
public would exceed $10,000,000;
(D) Unless at least 20% of the Registrable Securities owned
by Initiating Holders are to be sold in such demand registration; and
(E) After the Company has effected two registrations
pursuant to this Section 1.5 which have been declared or ordered effective and
pursuant to which securities have been sold; provided, however, that if a
registration statement is terminated or withdrawn prior to such registration
statement having been declared or ordered effective, then, in either case, the
Company shall have been deemed to have effected a registration pursuant to this
Section 1.5 unless the Holders that have requested to include Registrable
Securities in such registration promptly reimburse the Company for all
reasonable out-of-pocket costs incurred by the Company in connection with such
registration effort.
Subject to the foregoing clauses (A) through (E), the Company shall file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practicable, and in any event within 120 days, after
receipt of the request or requests of the Initiating Holders; provided, however,
-------- -------
that if the Company shall furnish to such Holders a certificate signed by the
president of the Company stating that in the good faith judgment of the Board of
Directors of the Company, it would be detrimental to the Company or its
business, financial condition, operations or prospects or its stockholders for
such registration statement to be filed in the near future and that it is,
therefore, essential to defer the filing of such registration statement, the
Company shall have the right to defer such filing for a reasonable period not to
exceed 120 days after receipt of the request of the Initiating Holders, and
provided further, however, that the Company shall not defer its obligations in
- -------- ------- -------
this manner more than once in any twelve month period.
-8-
<PAGE>
(b) Underwriting. The right of any Holder to registration pursuant
------------
to this Section 1.5 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities in
the underwriting to the extent requested (unless otherwise mutually agreed to by
a majority in interest of the Initiating Holders and such Holder with respect to
such participation and inclusion) to the extent provided herein.
The Company shall (together with all Holders selling Registrable Securities
in such underwritten offering) 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. Notwithstanding any other provision of
this Section 1.5, if the managing underwriter advises the Initiating Holders in
writing that marketing factors require a limitation on the number of shares of
Registrable Securities and other securities that may be included in the
registration and underwriting, then the Company shall so advise all Holders and
the number of shares of Registrable Securities and other shares which may be
included in the underwritten offering after the underwriter's marketing
limitation shall be allocated, first, among all Holders, pro rata, in proportion
to the respective amounts of Registrable Securities held by such Holders at the
time of filing the registration statement and second, to all other holders, in
proportion, as nearly as practicable, to the respective amounts of securities of
the Company owned by them. No Registrable Securities or other 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 Holder or other
holder to the nearest 100 shares.
If any Holder disapproves of the terms of the underwriting, such person may
elect to withdraw therefrom by written notice to the Company, the managing
underwriter and the Initiating Holders. The Registrable Securities and/or other
securities so withdrawn shall also be withdrawn from registration, and such
Registrable Securities and/or other securities shall not be transferred in a
public distribution prior to 180 days after the effective date of such
registration, or such other shorter period of time as the underwriters may
require. If by the withdrawal of such Registrable Securities or other
securities, a greater number of Registrable Securities held by other 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 Holders who have included
Registrable Securities in the registration the right to include additional
Registrable Securities therein in the same proportion and manner used in
determining the underwriter limitation in this Section 1.5(b).
If the managing underwriter has not limited the number of Registrable
Securities to be underwritten, the Company may include securities for its own
account or for the account of others in such registration if the managing
underwriter so agrees and if the number of Registrable Securities which would
otherwise have been included in such registration and underwriting will not
thereby be limited. If, in any registration effected under this Section 1.5,
the Company registers a greater number of shares of Common Stock for its own
account than the number of shares of Registrable Securities registered by all
Initiating Holders under
-9-
<PAGE>
this Section 1.5 hereof then the demand effected in connection with such
registration shall not be counted as a demand for registration effected pursuant
to Section 1.5(a) hereof.
1.6 Company Registration.
--------------------
(a) Notice of Registration. If at any time or from time to time the
----------------------
Company shall determine to register in an underwritten offering 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, (ii) a registration relating solely to Rule 145 transaction, or a
registration on any registration form that does not permit secondary sales, or
(iii) a registration requested pursuant to Section 1.7 hereof, the Company
shall, with respect to any Registrable Securities:
(i) promptly give to each Holder, Key Employee and Founder
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, (A) all the Registrable Securities specified in a written request by
each Holder, (B) all the Founders' Stock specified in a written request by each
Founder, and (C) all the Key Employee's Common Stock specified in a written
request by each Key Employee, received by the Company within 20 days after the
Company mails such written notice, subject to the provisions below. To the
extent that any holder of the Company's securities shall be both a Founder or
Key Employee and a Holder, the Company shall only be obligated to provide such
holder with one notice pursuant to this Section 1.6.
(b) Underwriting. The right of any Holder, Key Employee or Founder to
------------
registration pursuant to this Section 1.6 shall be conditioned upon the
participation by such Holder, Key Employee or Founder in such underwriting and
the inclusion of such Holder's Registrable Securities, Key Employee's Common
Stock or such Founder's Founders' Stock in the underwriting to the extent
provided herein. Those parties 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 provisions of
this Section 1.6, if the managing underwriter determines that marketing factors
require a limitation of the number of shares to be underwritten, the managing
underwriter may limit the Registrable Securities, Common Stock held by a Key
Employee and Founders' Stock to be included in such registration. The Company
shall so advise all Holders, Founders, Key Employees and the other holders
distributing their securities through such underwriting, and the number of
shares of Registrable Securities, Founders' Stock and other securities that may
be included in the registration and underwriting shall be allocated among the
Company, the Holders, Key Employees, the Founders and the other holders as
follows: First to the Company; second to the Holders, Key Employees and
Founders pro-rata, in proportion to the respective amount of
-10-
<PAGE>
Registrable Securities and Founders' Stock held by such Holders, Key Employees
and/or Founders, as the case may be, at the time of the filing of the
registration statement; and third, to all other holders in proportion, as nearly
as practicable, to the respective amounts of securities entitled to inclusion
(determined with regard to any requirement of a request to be included in such
registration) in such registration held by all such other holders; provided that
--------
with respect to a registration initiated by the Company, no such inclusion of
Registrable Securities, Founders' Stock and other securities by the underwriter
may reduce the securities being offered by the Company for its own account;
provided, however, that notwithstanding anything to the contrary contained in
- -------- -------
this Section 1.6(b), if any Founder shall be exercising its rights hereunder as
a result of a registration demanded by Holders pursuant to Section 1.5 hereof,
and the managing underwriter determines that marketing factors require a
limitation on the number of shares which may be included in such registration,
the number of shares of Registrable Securities, Founders' Stock and others
securities which may be included in such registration shall be allocated among
the Holders, Founders, Key Employees and other holders distributing their
securities through such registration in the manner set forth in Section 1.5(b).
To facilitate the allocation of shares in accordance with the above provisions,
the Company or the underwriter may round the number of shares allocated to any
Holder, Founder, Key Employee or other holder to the nearest 100 shares. If any
Holder, Founder, Key Employee or other holder disapproves of the terms of any
such underwriting, he may elect to withdraw therefrom by written notice to the
Company and the managing underwriter. Any securities excluded or withdrawn from
such underwriting 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 1.6
prior to the effectiveness of such registration whether or not any Holder, Key
Employee or Founder has elected to include securities in such registration.
1.7 Form S-3 Registration. After its Initial Offering, the Company shall
---------------------
use reasonable efforts to qualify for registration on Form S-3. After the
Company has qualified for the use of Form S-3, in addition to the rights
contained in the foregoing provisions of this Section 1, any Holder shall have
the right to request registration on Form S-3 (all such requests shall be in
writing and shall state the number of shares of Registrable Securities to be
disposed of and the intended methods of disposition of such shares by such
Holder or Holders). In case the Company shall receive from a Holder or Holders
a written request that the Company effect a registration on Form S-3 and any
related state securities qualification or state blue sky compliance with respect
to an amount of the Registrable Securities owned by such Holder or Holders for
which the anticipated aggregate offering price to the public would be at least
$500,000, the Company shall:
(a) promptly give written notice of the proposed registration, and any
related qualification or compliance, to all other Holders; and
-11-
<PAGE>
(b) as soon as practicable, use its most diligent efforts to effect
such registration and all such qualifications and compliances as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Holder's or Holders' Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any other Holder or Holders joining in such request as are
specified in a written request given within 20 days after receipt of such
written notice from the Company; provided, however, that the Company shall not
-------- -------
be obligated to effect any such registration, qualification, or compliance
pursuant to this Section 1.7 (1) if Form S-3 is not available for such offering
by Holder(s); (2) if the Company shall furnish to the Holders a certificate
signed by the president of the Company stating that in the good faith judgment
of the board of directors of the Company, it would be detrimental to the Company
or its business, financial condition, operations or prospects, or its
shareholders for such Form S-3 registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than 120 days after receipt of
the initiating request of the Holder or Holders under this Section 1.7;
provided, however, that the Company shall not utilize this right more than once
- -------- -------
in any twelve-month period; (3) if the Company has, within the twelve-month
period preceding the date of such request, already effected a registration on
Form S-3 for any Holders pursuant to this Section 1.7; (4) in any 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 (5) the Company shall have, since the date
hereof, effected more than six (6) such Form S-3 registrations.
Subject to the foregoing, the Company shall effect such registration,
qualification, or compliance (including, without limitation, the execution of an
undertaking to file post-effective amendments, 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) covering the Registrable Securities
and other securities so requested to be registered as soon as practicable after
receipt of the request or requests of the Holder. Registrations effected
pursuant to this Section 1.7 shall not be counted as demands for registration or
registrations effected pursuant to Sections 1.5 or 1.6.
If the registration to be effected pursuant to this Section 1.7 is to be an
underwritten public offering, it shall be managed by an underwriter or
underwriters acceptable to the Company and selected by a majority in interest of
the Holders requesting registration. In such event, the right of any Holder to
registration pursuant to this Section 1.7 shall be conditioned upon the
participation by such Holder in such underwriting and the inclusion of the
Registrable Securities of such Holder in the underwriting to the extent provided
herein. If the managing underwriter so selected determines that marketing
factors require a limitation of the number of shares to be underwritten, the
managing underwriter may limit the Registrable Securities held by such Holders
to be included in such registration. The Company shall so advise such Holders,
and the number of shares of Registrable Securities that may be included
-12-
<PAGE>
in the registration shall be allocated among the Holders and other holders as
follows: First, among the Holders pro rata, in proportion to the respective
amounts of Registrable Securities held by each of such Holders at the time of
filing of the registration statement and second, to the other holders, pro rata
in proportion to the respective amounts of securities of the Company held by
such holders at the time of the filing of the registration statement. As used
throughout this Section 1, the term "Form S-3" shall be deemed to include any
equivalent successor form for registration pursuant to the Act.
1.8 Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with the registration, qualification or compliance pursuant to
Sections 1.5, 1.6 and 1.7 shall be borne by the Company. All Selling Expenses
relating to securities so registered shall be borne by the holders of such
securities pro rata on the basis of the number of shares of securities so
registered on their behalf.
1.9 Lock-up. Each of the Holders and the Founders hereby agrees not to
-------
offer, sell, or otherwise dispose of any of the Company's Common Stock held of
record or beneficially owned by such person which at the time of the effective
date of such registration statement may be sold or otherwise transferred in
reliance upon Rule 144 promulgated under the Securities Act during the period of
time (not to exceed 180 days) determined by the Board of Directors of the
Company upon advice of its managing underwriter, from and after the effective
date of the registration statement for any underwritten public offering of the
Company's securities; provided that the obligations of the Holders (but not
those persons who are also Founders) under this Section 1.9 shall not apply
unless each officer, director and employee of the Company holding shares of
capital stock of the Company and each holder of five percent (5%) of the
Company's voting securities then outstanding are bound by similar restrictions.
Such restriction shall not apply to shares registered in such offering. In
order to enforce this provision, the Company may impose stop-transfer
instructions with respect to such shares until the end of such period. The
obligations described in this Section 1.9 shall not apply to a registration
relating solely to employee benefit plans on Form S-1 or Form S-8 or similar
forms that may be promulgated in the future, or a registration relating solely
to a Commission Rule 145 transaction on Form S-4 or similar forms that may be
promulgated in the future.
1.10 Registration Procedures. If and whenever the Company is required by
-----------------------
the provisions of this Section 1 to use its most diligent efforts (or in the
case of registration on Form S-3 pursuant to Section 1.7 hereof, to use its
reasonable efforts) to effect promptly the registration of Registrable
Securities and/or Founder's Stock, the Company shall:
(a) Prepare and file with the Commission a registration statement with
respect to such Registrable Securities and/or Founders' Stock and use its most
diligent efforts to cause such registration statement to become and remain
effective as provided herein.
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as
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<PAGE>
may be necessary to keep such registration statement effective and current and
to comply with the provisions of the Securities Act with respect to the sale of
or other disposition of all Registrable Securities and/or Founder's Stock
covered by such registration statement, including such amendments and
supplements as may be necessary to reflect the intended method of disposition of
the prospective seller or sellers of such Registrable Securities and/or
Founder's Stock but for no longer than one hundred eighty (180) days subsequent
to the effective date of such registration in the case of a registration
statement on Form S-1 (or any similar form of registration statement required to
set forth substantially identical information) and for no longer than one
hundred twenty (120) days in the case of a registration statement on Form S-3;
provided, however, that (i) such period shall be extended for a period of time
- -------- -------
equal to the period the underwriter recommends that all the Holders and/or
Founders refrain from selling the securities included in such registration due
to marketing conditions or other conditions which adversely affect the offer and
sale of such securities; and (ii) in the case of any registration of Registrable
Securities on Form S-3 which is intended to be offered on a continuous or
delayed basis, such period shall be extended, if necessary, to keep the
registration statement effective until all such Registrable Securities and/or
Founder's Stock are sold, provided that Rule 415 permits an offering on a
continuous or delayed basis, and provided further that applicable rules under
the Securities Act governing the obligation to file a post-effective amendment
permit, in lieu of filing a post-effective amendment that (I) includes any
prospectus required by Section 10(a)(3) of the Securities Act or (II) relates
facts or events representing a material or fundamental change in the information
set forth in the registration statement, the incorporation by reference of
information required to be included in (I) and (II) above to be contained in
periodic reports filed pursuant to Section 13 or 15(d) of the Exchange Act in
the registration statement.
(c) Furnish to each prospective seller of Registrable Securities
and/or Founder's Stock such number of copies of a prospectus, including a
preliminary prospectus, in conformity with the requirements of the Securities
Act, and such other documents, as such seller may reasonably request in order to
facilitate the public sale or other disposition of the Registrable Securities
and/or Founders' Stock of such seller.
(d) Notify each seller of Registrable Securities and/or Founder's
Stock covered by such registration statement at any time when a prospectus
relating thereto is required to be delivered under the Securities Act of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or incomplete in the
light of the circumstances then existing, and at the request of any such seller,
prepare and furnish to such seller a reasonable number of copies of a supplement
to or an amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading or
incomplete in the light of the circumstances then existing.
-14-
<PAGE>
(e) Cause all such Registrable Securities and/or Founder's Stock
registered pursuant hereunder to be listed on each securities exchange or
approved for quotation on any inter-dealer quotation system on which similar
securities issued by the Company are then listed or quoted.
(f) Provide a transfer agent and registrar for all Registrable
Securities and/or Founder's Stock registered pursuant to such registration
statement and a CUSIP number of all such Registrable Securities in each case not
later than the effective date of such registration.
(g) Otherwise use its best efforts to comply with all applicable rules
and regulations of the Commission, and make available to its security holders,
as soon as reasonably practicable, an earnings statement covering the period of
at least twelve months, but not more than eighteen months, beginning with the
first month after the effective date of the registration statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act.
(h) In connection with any underwritten offering pursuant to a
registration statement filed pursuant to Section 1.5, 1.6 or 1.7 hereof, the
Company will enter into an underwriting agreement reasonably necessary to effect
the offer and sale of Common Stock, provided such underwriting agreement
contains customary underwriting provisions and provided further that if the
underwriter so requests the underwriting agreement will contain customary
contribution provisions.
1.11 Indemnification. In the event any Registrable Securities and/or
---------------
Founders' Stock are included in a registration statement under this Section 1:
(a) The Company will indemnify each Holder, each of its respective
officers, directors, partners and affiliates and its legal counsel and
independent accountants, and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, each Founder 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 therein, or any amendment or supplement thereto, 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 the case of a
prospectus, in the light of the circumstances under which they were made) not
misleading, or any violation by the Company of 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 (or its officer, director, partner, affiliate or
control person), each Founder, each such Holder or 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
-15-
<PAGE>
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, Founder or underwriter and stated to be
specifically for use therein.
(b) Each Founder and/or Holder will, if Founders' Stock or Registrable
Securities held by the Founder or such Holder, respectively, 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 and its
legal counsel and independent accountants, 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, each Founder other than an indemnifying Founder hereunder, and
each other such Holder other than an indemnifying Holder hereunder, each of
their respective officers, directors, partners and affiliates, and each person
controlling each such other 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) or a material fact contained, on the effective date thereof,
in any such registration statement, any prospectus contained therein, or any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein (in the case of a
prospectus, in the light of the circumstances under which they were made) not
misleading, and will reimburse the Company, each Founder other than an
indemnifying Founder hereunder, each Holder other than an indemnifying Holder
hereunder, and such directors, officers, partners, affiliates, 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 or prospectus in reliance upon
and in conformity with written information furnished to the Company by an
instrument duly executed by such Founder or Holder and stated to be specifically
for use therein; provided, however, that the obligations of each Holder and each
-------- -------
Founder hereunder shall be limited to an amount equal to the net proceeds to
each such Founder or Holder of Registrable Securities sold as contemplated
herein.
(c) Each party entitled to indemnification under this Section 1.11
(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
-16-
<PAGE>
herein shall not relieve the Indemnifying Party of its obligations under this
Section 1 to the extent such failure is not prejudicial. 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. Notwithstanding anything to
the contrary contained in this Section 1.11(c), the Indemnified Party shall have
the right to employ its own counsel in any action, claim, litigation, proceeding
or investigation, and the fees and expenses thereof shall be borne by the
Indemnified Party, unless the Indemnified Party shall have reasonably concluded
that there may be one or more legal defenses available to it which are different
from or additional to those available to the Indemnifying Party, in which case
the Indemnifying Party shall bear all of such Indemnified Party's legal and
other fees and expenses which arise in defense thereof. In such event, the
Indemnifying Party shall not have the right to direct the defense of such
action, claim, litigation, processing or investigation on behalf of the
Indemnified Party.
(d) If the indemnification provided for in this Section 1.11 is held
by a court of competent jurisdiction to be unavailable to an Indemnified Party
with respect to any loss, liability, claim, damage or expense referred to
herein, then the Indemnifying Party, in lieu of indemnifying the Indemnified
Party shall contribute to the amount paid or payable by such Indemnified Party
with respect to such loss, liability, claim, damage or expense in the proportion
that is appropriate to reflect the relative fault of the Indemnifying Party and
the Indemnified Party in connection with the statements or omissions that
resulted in such loss, liability, claim, damage or expense as well as any other
relevant equitable considerations. The relative fault of the Indemnifying Party
and the Indemnified Party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of material fact or the
omission (or alleged omission) to state a material fact relates to information
supplied by the Indemnified 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.
1.12 Information by Holder. The Holder or Holders of Registrable
---------------------
Securities and/or Founders' Stock included in any registration shall furnish to
the Company such information regarding such person(s) and the distribution
proposed by such person(s) 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 1.
1.13 Rule 144 Reporting. With a view to making available the benefits
------------------
of certain rules and regulations of the Commission which may at any time permit
the sale of the Registrable Securities to the public without registration, after
such time as a public market exists for the Common Stock of the Company, the
Company shall use its best efforts to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, beginning 90
days after (i) the
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<PAGE>
effective date of the first registration statement filed by the Company for an
offering of its securities to the general public, (ii) the Company registers a
class of securities under the Exchange Act, or (iii) the Company issues an
offering circular meeting the requirements of Regulation A under the Securities
Act;
(b) 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
(c) Furnish to any Founder or Holder promptly upon request, a
written statement as to its compliance with the reporting requirements of Rule
144 (at any time after 90 days after the effective date of the first
registration statement filed by the Company for an offering of its securities to
the general public), and of the Securities Act and the 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 Founder or Holder may reasonably
request in availing itself of any rule or regulation of the Commission allowing
a Founder or Holder to sell any such securities without registration.
1.14 Limitation on Subsequent Registrations. From and after the date
--------------------------------------
of this Agreement, the Company shall not, without the prior written consent of
the holders of a majority of the Registrable Securities then outstanding, enter
into any agreement with any holder or prospective holder of any securities of
the Company giving such holder or prospective holder any rights to register any
securities of the Company.
1.15 Termination of Registration Rights. The rights of each Holder
----------------------------------
and Founder under this Section 1 shall terminate as follows:
(a) all of the Holders' registration rights under Sections 1.5,
1.6 and 1.7 hereof shall terminate five (5) years from and after the Initial
Offering;
(b) All of the Founders' registration rights under Section 1.6
hereof shall terminate five (5) years from and after the Initial Offering;
(c) All of the Key Employees' registration rights shall terminate
on the earlier of (i) the termination of the Key Employee's employment with the
Company and (ii) five (5) years from and after the Initial Offering.
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<PAGE>
SECTION 2
COVENANTS OF THE COMPANY
------------------------
The Company hereby covenants and agrees, so long as any Holder owns any
Registrable Securities, as follows:
2.1 Financial Information. Prior to the Initial Offering, and so long as
---------------------
any Holder owns at least 1,000,000 Preferred Shares or Common Shares issued
pursuant to the conversion thereof (as presently constituted and subject to
subsequent adjustment for stock splits, stock dividends, reverse stock splits,
recapitalizations and the like) (a "Substantial Holder") the Company shall
furnish the following reports to each Substantial Holder:
(i) as soon as practicable after the end of each fiscal
quarter (except the fourth quarter), and in any event within 45 days thereafter,
an unaudited income statement and statement of cash flows for such fiscal
quarter and an unaudited balance sheet as of the end of such fiscal quarter, in
each case prepared, to the extent consolidation is required under generally
accepted accounting principles applied on a consistent basis, on a consolidated
basis for the Company and any subsidiaries hereafter existing, within 30 days
after the end of each month, an unaudited monthly income statement, statement of
cash flows and balance sheet, in each case prepared, to the extent consolidation
is required under generally accepted accounting principles applied on a
consistent basis, on a consolidated basis for the Company and any subsidiaries
hereafter existing, subject to normal, nonrecurring year-end adjustments, and an
annual budget 60 days prior to the beginning of each fiscal year. The monthly
financial statements shall include comparisons to the then applicable annual
budget and summaries of financial plans of the Company and any Subsidiaries.
(ii) as soon as practicable after the end of each fiscal
year, and in any event within 90 days thereafter, an income statement and
statement of cash flows for such fiscal year, a balance sheet of the Company as
of the end of such fiscal year, all certified by independent public accountants
of recognized national standing selected by the Company.
All financial statements provided for above shall be prepared in
accordance with general accepted accounting principles, applied on a consistent
basis (except that such unaudited financial statements may be prepared without
footnotes and will be subject to normal, non-recurring year-end audit
adjustments).
Each Purchaser agrees that any information obtained pursuant to this
Section 2.1 which may be proprietary to the Company or otherwise confidential
shall not be disclosed by such Purchaser without the prior written consent of
the Company. Each Purchaser further acknowledges and understands that any
information so obtained which may be considered "inside" non-public information
will not be utilized by such Purchaser in connection with purchases and/or sales
of the Company's securities except in compliance with applicable state and
federal antifraud statutes.
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<PAGE>
2.2 Additional Information and Rights.
---------------------------------
(a) The Company will permit any Substantial Holder, and will permit
each Holder which represents that it is a "venture capital operating company"
for purposes of Department of Labor Regulation Section 2510.3-101, which makes a
request to the Company (a "VC Holder") (or a representative of any VC Holder) to
visit and inspect any of the properties of the Company, including its books of
account and other records (and make copies thereof and take extracts therefrom),
and to discuss its affairs, finances and accounts with the Company's officers
and its independent public accountants, all at such reasonable times and as
often as such person may reasonably request.
(b) Each VC Holder shall have the right to consult with and advise the
officers of the Company as to the management of the Company.
(c) The provisions of Section 2.1 hereof and this Section 2.2 shall
not be in limitation of any rights which any Holder, Substantial Holder or VC
Holder may have with respect to the books and records of the Company and any
subsidiary, or to inspect their properties or discuss their affairs, finances
and accounts, under the laws of the jurisdictions in which they are
incorporated.
(d) The Company shall allow an agent or representative of each
Substantial Holder (together with its affiliates), which does not have a
representative serving as a member of the Company's Board of Directors or their
respective designees to attend in a non-voting capacity any and all annual or
special meetings of the Board of Directors of the Company and shall receive
copies of any written consents distributed in lieu of any annual or special
meeting, and shall receive any and all information provided to the members of
the Board of Directors in connection with any of the foregoing.
2.3 Termination of Financial Information Rights. The Company's
-------------------------------------------
obligations to deliver information under Section 2.1(i) and (ii) hereof and the
rights of those Holders entitled to the benefits of Section 2.2(d) hereof shall
terminate and shall be of no further force or effect upon the closing of the
Company's first underwritten public offering. Thereafter, the Company shall
deliver to each Holder, and its assignees or transferees, such financial
information as the Company from time to time provides to holders of its
registered Common Stock as well as any information provided for in Section 2.2
to the extent applicable.
2.4 Inventions and Non-Disclosure Agreements. The Company shall cause
----------------------------------------
each person now or hereafter with access to confidential or proprietary
information to enter into a Proprietary Information Agreement, containing
provisions satisfactory to the Holders with respect to confidentiality,
corporate ownership of inventions and innovations during employment if such
agreements have not already been entered into.
2.5 Employee and Other Stock Arrangements. The Company shall not, without
-------------------------------------
the approval of the Board of Directors, issue any of its capital stock, or grant
an option or rights
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<PAGE>
to subscribe for, purchase or acquire any of its capital stock, to any employee,
consultant, officer or director of the Company or a subsidiary, except for
issuances of Common Stock or options to acquire Common Stock to certain
directors, officers and employees of the Company pursuant to the Company's
employee stock purchase plan and/or stock option plan, the adoption of either or
both of which plans shall be subject to the adoption of, and shall be
administered by the Board of Directors; provided, however, that the maximum
-------- -------
number of shares of Common Stock which may be issued and issuable thereunder
shall not exceed 1,500,000 shares (subject to adjustment in the case of stock
splits, dividends, combinations and the like) from and after the date hereof.
Each acquisition of any shares of Common Stock or any options to acquire Common
Stock by an employee, consultant, officer or director of the Company shall be
conditioned upon the execution and delivery by the Company and such director,
employee, officer or consultant of a stock purchase agreement or option
agreement, as the case may be, containing a transfer restrictions and vesting
limitations, substantially in a form approved by the Board of Directors of the
Company.
2.6 Books of Account and Reserves. The Company will keep books of record
-----------------------------
and account in which full, true and correct entries are made of all of its and
their respective dealings, business and affairs, in accordance with generally
accepted accounting principles.
2.7 Stock Fully Paid; Reservation of Shares. The Company covenants and
---------------------------------------
agrees that all Conversion Stock that may be issued upon the conversion of the
Preferred Shares will, upon issuance in accordance with the terms of the
Restated Certificate, be fully paid and nonassessable, and that the issuance
thereof shall not give rise to any preemptive rights on the part of any person,
other than the rights created under this Agreement. The Company further
covenants and agrees that the Company will at all times have authorized and
reserved a sufficient number of shares of its Common Stock for issuance upon
conversion of the Preferred Shares and will increase the authorized numbers of
shares of Common Stock if at any time the number of shares of Common Stock
authorized and unissued shall be insufficient to permit the conversion of the
Preferred Shares.
2.8 Replacement of Certificates Representing Preferred Shares. Upon
---------------------------------------------------------
receipt of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of any certificates representing Preferred Shares or
Conversion Stock, as the case may be, and, in the case of any such loss, theft,
or destruction, upon delivery of a bond of indemnity satisfactory to the Company
if required by the Board of Directors, or, in the case of any such mutilation,
upon surrender and cancellation of the certificates representing Preferred
Shares or Conversion Stock, as the case may be, the Company will issue new
certificates representing Series A Shares, Series B Shares, Series C Shares or
Conversion Stock, as the case may be, in lieu of such lost, stolen, destroyed or
mutilated certificates representing Series A Shares, Series B Shares, Series C
Shares or Conversion Stock, as the case may be.
2.9 Maintenance of Small Business Stock Status. The Company agrees that
------------------------------------------
(i) during the Limitation Period, it will satisfy the "active business" and "C
corporation" requirements described in Section 1202(c)(2) of the Code; (ii)
during the Limitation Period, it
-21-
<PAGE>
will not directly or indirectly engage in a redemption transaction described in
Section 1202(c)(3)(A) with respect to any Purchaser, Existing Investor or
Founders (or any person related to any of the foregoing within the meaning of
Section 267(b) or 707(b) of the Code); (iii) during the Limitation Period, it
will not directly or indirectly engage in a redemption transaction which would
cause the limitation set forth in Section 1202(c)(3)(B) of the Code to be
exceeded; and (iv) it will comply with the reporting requirements described in
Section 1202(d)(1)(C) of the Code.
SECTION 3
RIGHTS OF FIRST OFFER
---------------------
3.1 Rights of First Offer to First Offerees. The Company hereby grants to
---------------------------------------
each Holder (each a "First Offeree") the irrevocable and exclusive first option
(the "First Option") to purchase all or part of such First Offeree's Pro Rata
Portion of any New Securities which the Company may, from time to time after the
date of this Agreement, propose to issue and sell. Furthermore, if any First
Offeree does not, pursuant to Section 3.3, give notice of its intention to
exercise in full its option to purchase its Pro Rata Portion of the New
Securities, then each First Offeree who did give notice of such intent
(collectively, the "Fully Participating First Offerees") shall have the
irrevocable and exclusive second option (the "Second Option") to purchase all or
a part of the New Securities as to which a notice pursuant to the exercise of
the First Option could have been, but was not, delivered (for purposes of this
Section 3, the "Additional New Securities"). If more than one Fully
Participating First Offeree gives a notice (a "Second Notice") pursuant to
Section 3.3 of its intention to purchase Additional New Securities pursuant to
the exercise of the Second Option and the total number of New Securities covered
by such notices exceeds the total number of Additional New Securities, then the
Additional New Securities shall be allocated among such Fully Participating
First Offerees according to the following procedure, or in such different
proportions as such Fully Participating First Offerees shall agree among
themselves:
(a) Each Oversubscribing First Offeree (as defined below) shall be
apportioned the lesser of (A) that number of Additional New Securities that it
elected to purchase in its Second Notice and which it has not yet been
apportioned pursuant to this Section 3.1(a) or (B) its "Pro Rata Portion of the
Additional New Securities") (as defined below);
(b) If the apportionment in Section 3.1(a) is followed and there
remain (A) at least one Oversubscribing First Offeree who has not yet been
apportioned the number of Additional New Securities it elected to purchase in
its Second Notice and (B) any Additional New Securities, then the procedure
described in Section 3.1(a) shall be repeated; and
-22-
<PAGE>
(c) For purposes of this Section 3.1(i) an "Oversubscribing First
Offeree" means a Fully Participating First Offeree who has given a Second Notice
and who has not yet been apportioned pursuant to Section 3.1(a) that number of
Additional New Securities that it elected to purchase in its Second Notice, and
(ii) an Oversubscribing First Offeree's "Pro Rata Portion of Additional New
Securities" shall be equal to the number of Additional New Securities multiplied
by a fraction, the numerator of which is the number of shares of Conversion
Stock held by such Oversubscribing First Offeree as of the date of the Company
notice, and the denominator of which is the total number of shares of Conversion
stock held by all Oversubscribing First Offerees as of such date.
3.2 Calculation of Number of Shares of Conversion Stock Held or
-----------------------------------------------------------
Outstanding. For purposes of any calculation of the number of shares of
- -----------
Conversion Stock held or outstanding under this Section 3, and with respect to
any numerator or denominator provided herein, the conversion of all securities
convertible into or exchangeable for Conversion Stock and the exercise of all
outstanding rights, options and warrants to acquire Conversion Stock of the
Company shall be assumed.
3.3 Notices With Respect to Proposed Issuance of New Securities. In the
-----------------------------------------------------------
event the Company proposes to undertake an issuance of New Securities, it shall
give each First Offeree entitled to a right of first offer pursuant to this
Section 3 written notice (the "Company Notice") of its intention, describing in
detail the type of New Securities, the price and terms upon which the Company
proposes to issue such New Securities. Each such First Offeree shall have
twenty (20) days from the date of receipt of any such Company Notice to agree to
purchase, pursuant to the exercise of the First Option, up to such First
Offeree's Pro Rata Portion of such New Securities for the price and upon the
terms and conditions specified in the Company Notice by giving written notice to
the Company and stating therein the quantity of New Securities to be purchased.
If, following the expiration of such twenty (20) day period, there exist
Additional New Securities subject to the Second Option, then the Company shall
give each Fully Participating First Offeree a second written notice (the "Second
Company Notice") to such effect, and each such Fully Participating First Offeree
shall then have fifteen (15) days from the date of receipt of such Second
Company Notice to agree to purchase (on such terms and conditions) the quantity
of Additional New Securities stated therein, subject to the application of the
procedures set forth in Section 3.1.
3.4 Company's Right to Complete Proposed Sale of New Securities to the
------------------------------------------------------------------
Extent Rights of First Offer are Not Exercised. In the event the First Offerees
- ----------------------------------------------
fail to exercise a right of first offer with respect to any New Securities
within the periods specified in Section 3.3, the Company shall have ninety (90)
days thereafter to sell or enter into an agreement (pursuant to which the sale
of such New Securities shall be closed, if at all, within forty-five (45) days
from the date of said agreement) to sell the New Securities not elected to be
purchased by First Offerees at the price and upon terms no more favorable to the
prospective purchasers of such securities than those specified in the Company
Notice. In the event the Company has not sold the New Securities or entered
into an agreement to sell the New Securities within said 60-day period (or sold
and issued New Securities in accordance with the
-23-
<PAGE>
foregoing within 30 days from the date of said agreement), the Company shall not
thereafter issue or sell such New Securities without first offering such
securities to the First Offerees in the manner provided in this Section 3.
3.5 Expiration of Rights of First Offer. The rights of first offer
-----------------------------------
granted under this Section 3 shall expire upon the effective date of the
registration statement filed in connection with the Qualified Offering.
SECTION 4
RIGHTS OF CO-SALE
-----------------
4.1 Calculation of Conversion Stock. For purposes of any calculation of
-------------------------------
the number of shares of Conversion Stock held or outstanding under this Section
4, and with respect to any numerator or denominator provided herein, the
conversion of all securities convertible into or exchangeable for Conversion
Stock and the exercise of all outstanding rights, options and warrants to
acquire Conversion Stock of the Company shall be assumed.
4.2 Third Party Offers. Each Key Employee, Founder or Nash (in his
------------------
capacity as a "Holder" and "Founder" or "Key Employee") hereby agrees that
subject to the terms and conditions set forth below, should he receive one or
more bona fide offers upon specific terms and conditions (collectively the
"Purchase Offer"), from any person or persons, to purchase all or any portion of
his Restricted Securities, then such Key Employee, Founder or Nash, as the case
may be, shall promptly notify (a "Notice") each Holder (other than a Holder who
is also a Founder (including Nash) or Key Employee) (a "Co-Sale Offeree") in
writing of the terms and conditions of such Purchase Offer.
4.3 Right of Co-Sale. (a) Each Co-Sale Offeree shall have the right,
----------------
exercisable upon written notice to the Founder, Key Employee or Nash, as the
case may be, giving notice of the receipt of a Purchase Offer pursuant to
Section 4.2 hereof (each such Founder, Key Employee or Nash, being sometimes
hereafter referred to as a "Co-Sale Offeror"), within 30 business days after
receipt of a Notice of the Purchase Offer from a Co-Sale Offeror, to participate
in the Co-Sale Offeror's sale of Restricted Securities pursuant to the specified
terms and conditions of such Purchase Offer. To the extent one or more Co-Sale
Offerees exercises such right(s) of participation in accordance with the terms
and conditions hereof, the number of shares of Restricted Securities which the
Co-Sale Offeror may sell pursuant to such Purchase Offer shall be
correspondingly reduced to reflect the number of shares which all of the Co-Sale
Offerees shall be permitted to sell under the rights of co-sale granted
hereunder. The right of participation of each Co-Sale Offeree shall be subject
to the following terms and conditions.
(i) Each Co-Sale Offeree may sell all or any part of that number
of Registrable Securities (on an as-converted basis) equal to the product
obtained by multiplying
-24-
<PAGE>
(x) the aggregate number of shares of Restricted Securities covered by the
Purchase Offer by (y) a fraction, the numerator or which is the number of shares
of Conversion Stock (as calculated in accordance with Section 4.1 hereof) at the
time owned by such Co-Sale Offeree, and the denominator of which is the combined
number of shares of Restricted Securities (on an as-converted basis) then owned
by such Co-Sale Offeror and Conversion Stock (as calculated in accordance with
Section 4.1 hereof) at the time owned by the Co-Sale Offerees.
(ii) To the extent one of the Co-Sale Offerees exercising its
rights of co-sale under this Section 4.3(a) elects not to sell the full number
of shares it is entitled to sell pursuant to subparagraph (1) above, the Co-Sale
Offeror shall give notice of such election to the Co-Sale Offerees who do so
elect (collectively, the "Participants"). Such notice may be made by telephone
if confirmed in writing within two (2) business days. The Participants shall
have five (5) days from the date such notice was given to agree to sell their
pro rata share of the unsold portion. For purposes of this paragraph, a
Participant's pro rata share shall be equal to the product obtained by
multiplying (i) the number of shares in the unsold portion by a fraction, the
numerator of which is the number of shares of Conversion Stock as calculated in
accordance with Section 4.1 hereof) held by such Participant, and the
denominator of which is the total number of shares of Conversion Stock (as
calculated in accordance with Section 4.1 hereof) held by all of the
Participants.
(iii) Each of the Co-Sale Offerees may effect its participation in
the Co-Sale Offeror's sale by delivering to the Co-Sale Offerer for transfer to
the purchase offeror one or more certificates, properly endorsed for transfer,
which represent
(X) the type and number of shares of Conversion Stock which
the Holder elects to sell pursuant to this Section 4.3(a): or
(Y) that number of Preferred Shares, which is at such time
convertible into the number of shares of Common Stock which the Co-Sale Offeree
elects to sell pursuant to this Section 4.3(a). The Company agrees to convert
all Preferred Shares received by the Co-Sale Offeror into Common Stock
concurrently with the actual transfer of such shares to the prospective
purchaser.
(b) The stock certificates which the Co-Sale Offeree delivers to
the Co-Sale Offeror pursuant to Section 4.3(a)(iii) shall be transferred by the
Co-Sale Offeror to the prospective purchaser in consummation of the sale of such
Co-Sale Offeror's Restricted Securities pursuant to the terms and conditions
specified in the Notice to Co-Sale Offerees and the Co-Sale Offeror shall
thereafter promptly remit to each Co-Sale Offeree participating in the Purchase
Offer that portion of the sale proceeds or other consideration to which such Co-
Sale Offeree is entitled by reason of its participation in such sale. To the
extent that any prospective purchasers prohibit such assignment or otherwise
refuses to purchase Conversion Stock from a Co-Sale Offeree exercising its
rights of co-sale hereunder, the Co-Sale Offeror shall not sell to such
prospective purchaser(s) any Restricted Securities unless and until,
-25-
<PAGE>
simultaneously with such sale, the Co-Sale Offeror shall purchase such shares or
other securities from such Co-Sale Offeree.
(c) The exercise or non-exercise of the rights of each Co-Sale Offeree
hereunder to participate in one of more sales of Restricted Securities by a Co-
Sale Offeror shall not adversely affect their rights to participate in
subsequent sales of Restricted Securities by any Co-Sale Offeror which meet the
conditions specified in Section 4.3(a).
(d) The fees and expenses of each Co-Sale Offeree desiring to
participate in a sale by a Co-Sale Offeror hereunder, including reasonable
attorneys' fees and expenses, shall be borne by the Co-Sale Offeree so
exercising its rights of co-sale hereunder (except for costs associated with the
transfer of such securities on the books and records of the Company which shall
be borne by the Company).
4.4 Put Option After Prohibited Transfers.
-------------------------------------
(a) In the event a Founder or Key Employee or Nash should sell any
Restricted Securities in contravention of the co-sale rights of the Co-Sale
Offerees under Section 4.3 of this Agreement (a "Prohibited Transfer"), each Co-
Sale Offeree, in addition to any and all such other remedies as may be available
at law, in equity or hereunder, shall have the put option provided below, and
such Founder or Key Employee or Nash shall be bound by the applicable provisions
of such option.
(b) In the event of a Prohibited Transfer, each Co-Sale Offeree shall
have the right to sell to Nash or such Founder or Key Employee the type and
number of Restricted Securities equal to the type and number of shares each Co-
Sale Offeree would have been entitled to transfer to the purchaser had the
Prohibited Transfer been effected pursuant to and in compliance with the terms
hereof. Such sale shall be made on the following terms and conditions:
(i) The price per share at which the shares are to be sold to
such Founder, Key Employee or Nash, as the case may be, shall be equal to the
price per share paid by the purchaser to such Founder, Key Employee or Nash in
the Prohibited Transfer. Nash or such Founder or Key Employee shall also
reimburse each Co-Sale Offeree for any and all fees and expenses, including
legal fees and expenses, incurred pursuant to the exercise or the attempted
exercise of the Co-Sale Offeree's rights of co-sale under Section 4.3 with
respect to the Prohibited Transfer.
(ii) Within 90 days after the later of the dates on which a Co-
Sale Offeree (A) received notice of the Prohibited Transfer or (B) otherwise
becomes aware of the Prohibited Transfer, such Co-Sale Offeree shall, if
exercising the put option created hereby, deliver to Nash or such Founder or Key
Employee the certificate or certificates representing shares to be sold, each
certificate to be properly endorsed for transfer.
-26-
<PAGE>
(iii) Nash or such Founder or Key Employee shall, upon receipt of the
certificate or certificates for the shares to be sold by a Co-Sale Offeree,
pursuant to this Section 4.4(b), pay the aggregate purchase price therefor and
the amount of reimbursable fees and expenses, as specified in Section 4.4(b)(i),
in cash or by other means acceptable to the Co-Sale Offeree.
(iv) Notwithstanding the foregoing, any attempt by Nash or such
Founder or Key Employee to transfer Restricted Securities in violation of
Section 4.3 hereof shall be null and void and the Company agrees it will not
effect such a transfer nor will it treat any alleged transferee as the holder of
such shares without written consent of a majority in interest of the Co-Sale
Offerees.
4.5 Exempt Transfers. Notwithstanding anything to the contrary contained
----------------
in Sections 4.2 through 4.4, the rights of a Co-Sale Offeree pursuant to this
Section 4 shall not apply, and Nash and each of the Founders and Key Employees
shall have no obligations with respect to:
(a) any proposed transfer by Nash or Founder or Key Employee pursuant
to a merger, consolidation, recapitalization or similar events;
(b) any proposed transfer by Nash or Founder or Key Employee to the
public pursuant to a registration statement filed with, and declared effective
by the Commission under the Securities Act which was effected pursuant to
Section 1.5, 1.6 or 1.7 hereto;
(c) any proposed transfer to an individual who is the spouse, child or
grandchild of Nash, Founder, Key Employee or trust for the benefit of any of
their respective spouses, children or grandchildren, provided that such
transferee agrees to be bound by the terms and provisions of this Agreement, and
in the case of Nash's transferees, or any other Founder who is a party to the
Shareholders' Voting Agreement, the Shareholders' Voting Agreement: or
(d) any proposed transfer or series of transfers of not more than five
percent (5%) of the aggregate of all Restricted Securities held by Nash or such
Founder or Key Employee as of the date hereof plus all Restricted Securities
acquired by Nash or such Founder or Key Employee from and after the date hereof
(or in the case of a Key Employee, the number of Restricted Securities held by
such Key Employee as of the date on which such Key Employee became a party to
this Agreement plus any Restricted Securities thereafter acquired).
-27-
<PAGE>
4.6 Termination of Rights. The rights of each Co-Sale Offeree under
---------------------
Sections 4.1 through 4.4 hereof shall terminate on the first to occur of the
following:
(a) as to any Co-Sale Offeree, such time as such Co-Sale Offeree shall
no longer be the owner of Registrable Securities; or
(b) the closing of an underwritten public offering of the Company
covering the offer and sale of the Company's Common Stock for the account of the
Company and/or selling stockholders and in which immediately thereafter all of
the then issued and outstanding Preferred Shares shall have been converted into
Common Stock; or
(c) the closing of the Company's sale of all or substantially all of
its assets or the acquisition of the Company by means of a merger of the Company
with or into any other corporation (other than a mere reincorporation or other
entity or person or other form of corporate reorganization corporation
transaction) or a transaction in which the Company is the surviving entity but
greater than 50% of the shares of the Company's capital stock outstanding
immediately prior to the transaction are exchanged or converted by virtue of the
transaction into other property, whether in the form of cash, securities or
otherwise.
SECTION 5
MISCELLANEOUS
-------------
5.1 Waiver of "Pay-to-Play". The parties hereto acknowledge and agree
-----------------------
that the "pay-to-play" provisions found in Section 3.6 of the Original Agreement
and Article THIRD Section 4(b) of the Amended and Restated Certificate of
Incorporation of the Company in effect prior to the filing of the Restated
Certificate shall not be triggered as a result of the issuance of the Series C
Preferred Shares.
5.2 Governing Law. This Agreement shall be governed in all respects by
-------------
the laws of the State of Delaware, as applied to agreements among Delaware
residents entered into and to be performed entirely within Delaware.
5.3 Successors and Assigns, Assignment of Rights. The rights and benefits
--------------------------------------------
of a Purchaser or Existing Investor hereunder (including such Purchaser's or
Existing Investor's rights and benefits as a Holder under Sections 1, and 2.1
and 2.2 hereof) may be assigned to a transferee or assignee in connection with
transfer or assignment of any Preferred Shares or Registrable Securities (or
Conversion Stock issued or issuable thereunder) by such Purchaser or Existing
Investor (A) to any entity which is a majority-owned subsidiary of a Holder or
controls, is controlled by or under common control with the Holder or Existing
Investor, and (B) to any other entity provided that (a) such transfer may
otherwise be effected in accordance with applicable securities laws, (b) such
transferee or assignee acquires at least 100,000 shares of Registrable
Securities, and (c) such assignee or transferee executes a written instrument
agreeing to be bound by the terms and provisions of this Agreement; provided
that, notwithstanding the foregoing, the information rights granted to each of
the Holders and Existing Investor under Sections 2.1 and 2.2 hereof shall not be
assigned or transferred by a
-28-
<PAGE>
Holder or Existing Investor to any successor, transferee or assignee of such
Holder and Existing Investor which is engaged in any business that is directly
competitive with the Company in any line of business engaged in by the Company.
Any such transfer or assignment permitted hereby shall inure to the benefit of,
and be binding upon, the successors, assigns, heirs, executors and
administrators of the parties hereto. The rights of a Founder, Key Employee or
Nash to cause the Company to register securities pursuant to Section 1 hereof
may not be transferred or assigned; provided, however that the rights and
-------- -------
benefits of the Founders and Key Employees hereunder may be assigned or
transferred to an assignee or transferee pursuant to Section 4.5(c) hereof.
5.4 Entire Agreement; Amendment; Waiver. This Agreement supersedes all
-----------------------------------
prior agreements or understandings among the parties regarding the matters
addressed herein including, but not limited to, the Original Agreement. Neither
this Agreement nor any term hereof may be amended, waived, discharged or
terminated, except by a written instrument signed by the Company and the holders
of at least sixty six and two-thirds percent (66 2/3%) of the Registrable
Securities and the Company and any such amendment, waiver, discharge or
termination shall be binding upon all the parties hereto, but in no event shall
the obligation of any party hereto be materially increased, except upon the
written consent of such party.
5.5 Notices, etc. All notices and other communications required or
------------
permitted hereunder shall be in writing and shall be mailed by United States
first-class mail, postage prepaid, sent by facsimile or delivered personally by
hand or nationally recognized courier addressed (a) if to a Purchaser or
Existing Investor, as indicated on the list of Purchasers attached hereto as
Exhibit A, or at such other address as such Purchaser or Existing Investor or
permitted assignee shall have furnished to the Company in writing, (b) if to a
Founder (in his capacity as a Founder, Holder or Existing Investor hereunder),
as indicated on the list of Founders attached hereto as Exhibit B, or at such
other address as such Founder or his permitted assignee shall have furnished to
the Company in writing, or (c) if to the Company, at such address or facsimile
number as the Company shall have furnished to each Purchaser and Existing
Investor in writing. All such notices and other written communications shall be
effective on the date of mailing, facsimile transfer or delivery.
5.6 Delays or Omissions. No delay or omission to exercise any right,
-------------------
power or remedy accruing to any Purchaser or Existing Investor (in any capacity
hereunder), upon any breach or default of the Company or Nash or any Founder
under this Agreement shall impair any such right, power or remedy of such
Purchaser or Existing Investor nor shall it be construed to be a waiver of any
such breach or default, or an acquiescence therein, nor shall a waiver of any
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 Purchaser or Existing Investor (in either case, in
any capacity hereunder) of any breach or default under this Agreement or any
waiver on the part of any Purchaser or Existing Purchaser of any provisions or
conditions of this Agreement must be made 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 any Purchaser or
Existing Investor, shall be cumulative and not alternative.
-29-
<PAGE>
5.7 Rights; Separability. Unless otherwise expressly provided herein, a
--------------------
Purchaser's or Existing Investor's rights hereunder are several rights, not
rights jointly held with any of the other Purchaser or Existing Investor. In
case any provision of the Agreement shall be invalid, illegal or unenforceable,
the validity, legality and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby.
5.8 Information Confidential. Each Purchaser and Existing Investor
------------------------
acknowledges that the information received by them pursuant hereto may be
confidential and for its use only, and it will not use such confidential
information in violation of the Exchange Act or reproduce, disclose or
disseminate such information to any other person (other than its employees or
agents having a need to know the contents of such information, and its
attorneys), except in connection with the exercise of rights under this
Agreement, unless the Company has made such information available to the public
generally or such Purchaser or Existing Investor is required to disclose such
information by a governmental body, including the National Association of
Insurance Commissioners or any other similar regulatory body.
5.9 Titles and Subtitles. The titles of the paragraphs and subparagraphs
--------------------
of this Agreement are for convenience of reference only and are not to be
considered in construing or interpreting this Agreement.
5.10 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
5.11 Aggregation of Stock. All shares of the Registrable Securities held
--------------------
or acquired by affiliated entities or persons shall be aggregated together for
the purpose of determining the availability of any rights under this Agreement.
5.12 No Third Party Beneficiaries. The covenants and agreements set
----------------------------
forth herein are for the sole and exclusive benefit of the parties hereto and
their respective successors and assigns and such covenants and agreements shall
not be construed as conferring, and are not intended to confer, any rights or
benefits upon any other persons.
5.13 Remedies. The parties to this Agreement acknowledge and agree that a
--------
breach of any of the covenants of the Company, the Purchasers, Existing
Investors or the Founders set forth in this Agreement may not be compensable by
payment of money damages and, therefore, that the covenants of the foregoing
parties set forth in this Agreement may be enforced in equity by a decree
requiring specific performance. Without limiting the foregoing, if any disputes
arise concerning the sale or other disposition of any of the Restricted
Securities contained in Section 1 or pursuant to Section 4 hereof, the parties
to this Agreement agree that an injunction may be issued restraining the sale or
other disposition of such Restricted Securities or interest or rescinding any
such sales or other disposition, pending resolution of such controversy. Such
remedies shall be cumulative and non-exclusive and shall be in addition to any
other rights and remedies the parties may have under this Agreement. Any
transfer or acquisition of Restricted Securities in violation of this Agreement
shall be null and void ab initio.
-30-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Investors' Rights
Agreement effective as of the day and year first above written.
THE COMPANY: VIROPHARMA, INC.
By:_______________________________
Name:
Title:
THE PURCHASERS: FRAZIER HEALTHCARE II, L.P.
By:_______________________________
Name:
Title:
OAK INVESTMENT PARTNERS VI,
LIMITED PARTNERSHIP
By:_______________________________
Name:
Title:
OAK VI AFFILIATES FUND, LIMITED
PARTNERSHIP
By:_______________________________
Name:
Title:
SEVIN ROSEN FUND IV L.P.
By:_______________________________
Name:
Title:
-31-
<PAGE>
SEVIN ROSEN BAYLESS
MANAGEMENT COMPANY
By:_______________________________
Name:
Title:
______________________________
Jennifer Gill Roberts
______________________________
Stephen L. Domenik
TECHNOLOGY LEADERS II L.P.
By:____________________________
Name:
Title:
TECHNOLOGY LEADERS II
OFFSHORE L.P.
By:____________________________
Name:
Title:
NEW YORK LIFE INSURANCE
COMPANY
By:____________________________
Name:
Title:
-32-
<PAGE>
SCHEER & COMPANY, INC.
By:____________________________
Name:
Title:
-------------------------------
Frank Baldino
-------------------------------
Mark McKinlay
-------------------------------
Claude Nash
-------------------------------
Marc Collett
-------------------------------
Johanna Griffin
-------------------------------
Guy Diana
-------------------------------
Vincent Milano
-------------------------------
Joshua Lederberg
-33-
<PAGE>
EXHIBIT 23.1
WHEN THE TRANSACTION REFERRED TO IN NOTE 12 OF THE NOTES TO FINANCIAL STATEMENTS
HAS BEEN CONSUMATED, WE WILL BE IN A POSITION TO RENDER THE FOLLOWING
AUDITORS' CONSENT.
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
ViroPharma Incorporated
We consent to the use of our report included herein and to the references to our
firm under the headings "Selected Financial Data" and "Experts" in the
prospectus.
Philadelphia, Pennsylvania
September 20, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 JUN-30-1996
<CASH> 337,044 828,581
<SECURITIES> 4,376,382 7,607,221
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 4,817,374 8,723,483
<PP&E> 0 204,706
<DEPRECIATION> 0 20,897
<TOTAL-ASSETS> 4,873,845 8,963,910
<CURRENT-LIABILITIES> 1,546,999 1,448,556
<BONDS> 0 0
7,428,464 15,053,996
0 0
<COMMON> 1,657 1,802
<OTHER-SE> (4,103,275) (7,684,458)
<TOTAL-LIABILITY-AND-EQUITY> 4,873,845 8,963,910
<SALES> 0 0
<TOTAL-REVENUES> 90,813 0
<CGS> 0 0
<TOTAL-COSTS> 4,021,405 3,298,277
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (3,854,862) (3,223,996)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (3,930,592) (3,298,277)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,854,862) (3,223,996)
<EPS-PRIMARY> (.90) (.52)
<EPS-DILUTED> 0 0
</TABLE>
