<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-21699
VIROPHARMA INCORPORATED
(Exact Name of Registrant as Specified in its Charter)
Delaware 94-2347624
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
405 Eagleview Boulevard
Exton, Pennsylvania 19341
(Address of Principal Executive Offices and Zip Code)
610-458-7300
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirement for the past 90 days: Yes X NO ______
---------
Number of shares outstanding of the issuer's Common Stock, par value $.002 per
share, as of August 11, 1999: 11,576,824 shares.
1
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VIROPHARMA INCORPORATED
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----------
Item 1. Financial Statements:
<S> <C>
Balance Sheets at December 31, 1998 and June 30, 1999 3
Statements of Operations for the three months ended June 30, 1998 and 1999, the 4
six months ended June 30, 1998 and 1999, and the period from December 5, 1994
(inception) to June 30, 1999
Statements of Cash Flows for the six months ended June 30, 1998 and 1999 and the 5
period from December 5, 1994 (inception) to June 30, 1999
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and 8
Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 10
</TABLE>
PART II. OTHER INFORMATION
<TABLE>
<S> <C>
Item 2. Changes in Securities. 11
Item 4. Submission of Matters to a Vote of Security Holders. 11
Item 6. Exhibits and Reports on Form 8-K. 12
Signatures 13
</TABLE>
2
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PART I. FINANCIAL INFORMATION
- ---------------------------------
ITEM 1. FINANCIAL STATEMENTS
ViroPharma Incorporated
(A Development Stage Company)
Balance Sheets
December 31, 1998 and June 30, 1999
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
----------------- ----------------
Assets Audited Unaudited
----------------- ----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,076,682 8,259,497
Short-term investments 18,935,100 12,323,635
Notes receivable from officers - current 39,205 39,205
Other current assets 435,054 280,998
----------------- ----------------
Total current assets 20,486,041 20,903,335
Equipment and leasehold improvements, net 2,477,105 2,653,893
Restricted investments 550,000 550,000
Notes receivable from officers - noncurrent 62,356 42,754
Other assets 81,899 81,899
----------------- ----------------
Total assets $ 23,657,401 24,231,881
================= ================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable 1,442,756 3,105,810
Loans payable - current 200,000 200,000
Obligation under capital lease - current 50,379 25,723
Accrued expenses and other current liabilities 7,302,511 4,125,256
----------------- ----------------
Total current liabilities 8,995,646 7,456,789
Loans payable - non-current 1,822,917 1,782,083
Obligation under capital lease - noncurrent 2,807 -
----------------- ----------------
10,821,370 9,238,872
----------------- ----------------
Stockholders' equity:
Preferred stock, par value $.001 per share. Authorized 5,000,000
shares at December 31, 1998 and June 30, 1999; none issued or
outstanding at December 31, 1998 and 2,300,000 at June 30, 1999 - 2,300
Common stock, par value $.002 per share. Authorized 27,000,000 shares
at December 31, 1998 and June 30, 1999; issued and outstanding
11,516,794 shares at December 31, 1998 and 11,572,654 at June 30, 1999 23,034 23,145
Additional paid-in capital 61,373,998 75,227,888
Deferred compensation (247,601) (120,958)
Unrealized gains on available for sale securities 107,562 50,999
Deficit accumulated during the development stage (48,420,962) (60,190,365)
----------------- ----------------
Total stockholders' equity 12,836,031 14,993,009
----------------- ----------------
Commitments
Total liabilities and stockholders' equity $ 23,657,401 24,231,881
================= ================
See accompanying notes to financial statements.
</TABLE>
3
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ViroPharma Incorporated
(A Development Stage Company)
Statements of Operations
(unaudited)
Three months ended June 30, 1998 and 1999,
the six months ended June 30, 1998 and 1999, and the
period from December 5, 1994 (inception) to June 30, 1999
<TABLE>
<CAPTION>
Period
December 5, 1994
Three months ended Six months ended (inception) to
June 30, June 30, June 30,
1998 1999 1998 1999 1999
------------ --------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues:
License fee and milestones revenue $ 750,000 - $ 750,000 - 4,000,000
Grant revenue - - - - 526,894
------------ --------- ------------ ---------- ----------
Total revenues 750,000 - 750,000 - 4,526,894
------------ --------- ------------ ---------- ----------
Operating expenses incurred
in the development stage:
Research and development 5,819,081 5,233,702 9,636,927 10,094,585 55,854,381
General and administrative 945,372 1,240,116 1,878,645 2,394,332 12,867,354
------------ --------- ------------ ---------- ----------
Total operating expenses 6,764,453 6,473,818 11,515,572 12,488,917 68,721,735
------------ --------- ------------ ---------- ----------
Loss from operations (6,014,453) (6,473,818) (10,765,572) (12,488,917) (64,194,841)
Interest income, net 382,589 369,042 703,364 719,514 4,004,476
------------ --------- ------------ ---------- ----------
Net Loss $ (5,631,864) (6,104,776) $(10,062,208) (11,769,403) (60,190,365)
============ ========= ============ ========== ==========
Beneficial conversion feature of
preferred stock 4,140,000 4,140,000
---------- ----------
Net loss allocable to common
shareholders (10,244,776) (15,909,403)
========== ==========
Basic and diluted net loss
per share allocable to common
shareholders (0.49) (0.89) (0.88) (1.38)
============ ========= ============ ==========
Shares used in computing
basic and diluted net loss
per share allocable to
common shareholders: 11,481,927 11,572,195 11,478,646 11,563,641
============ ========== ============ ==========
</TABLE>
See accompanying notes to financial statements
4
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ViroPharma Incorporated
(A Development Stage Company)
Statements of Cash Flows
(unaudited)
Six months ended June 30, 1998 and 1999 and the
period from December 5, 1994 (inception) to June 30, 1999
<TABLE>
<CAPTION>
Period from
December 5, 1994
Six months ended (inception) to
June 30, June 30,
1998 1999 1999
--------------------------------------------------
<S> <C><C> <C> <C>
Cash flows from operating activities:
Net loss $ (10,062,208) (11,769,403) (60,190,365)
Adjustments to reconcile net loss to net cash
used in operating activities:
Non-cash compensation expense 102,275 126,643 712,128
Non-cash warrant value 7,968 7,968 149,760
Non-cash consulting expense 6,650 4,860 46,975
Depreciation and amortization expense 191,347 258,566 1,033,031
Changes in assets and liabilities:
Other current assets (244,498) 154,056 (280,998)
Notes receivable from officers (3,370) 19,602 (81,959)
Other assets - - (81,899)
Accounts payable (67,586) 1,663,054 3,105,810
Accrued expenses and other current liabilities 120,578 (3,134,756) 4,274,005
--------------------------------------------------
Net cash used in operating activities (9,948,844) (12,669,410) (51,313,512)
Cash flows from investing activities:
Purchase of equipment (657,776) (435,354) (3,686,925)
Purchase of short-term investments (16,045,675) (11,272,252) (124,942,110)
Sales of short-term investments - - 9,680,414
Maturities of short-term investments 23,613,553 17,827,154 102,439,060
--------------------------------------------------
Net cash (used in) provided by investing activities 6,910,102 6,119,548 (16,509,561)
Cash flows from financing activities:
Net proceeds from issuance of preferred stock - 13,760,900 27,692,143
Net proceeds from issuance of common stock 18,472 82,573 45,887,245
Proceeds from milestone advance - - 1,000,000
Proceeds from loans payable - - 1,100,000
Payment of loans payable (50,000) (83,333) (266,666)
Proceeds received on notes receivable - - 1,625
Proceeds from notes payable - - 692,500
Payment of notes payable - - (50,000)
Obligation under capital lease (29,830) (27,463) 25,723
--------------------------------------------------
Net cash provided by (used in) financing activities (61,358) 13,732,677 76,082,570
--------------------------------------------------
Net increase (decrease) in cash and cash equivalents (3,100,100) 7,182,815 8,259,497
Cash and cash equivalents at beginning of period 4,204,330 1,076,682 -
--------------------------------------------------
Cash and cash equivalents at end of period $ 1,104,230 8,259,497 8,259,497
==================================================
Supplemental disclosure of noncash transactions:
Conversion of Note Payable to Series A and
Series B Preferred Stock $ - - 642,500
Conversion of mandatorily redeemable convertible
preferred stock to common shares - - 16,264,199
Notes issued for 828,750 common shares - - 1,625
Deferred compensation - - 833,086
Accretion of redemption value attributable to
mandatorily redeemable convertible preferred stock - - 1,616,445
Conversion of milestone advance to loan payable - - 1,000,000
Unrealized gains (losses) on available for sale securities (185,863) (56,563) 50,999
See accompanying notes to financial statements.
</TABLE>
5
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ViroPharma Incorporated
(A Development Stage Company)
Notes to Financial Statements
June 30, 1998 and 1999
(unaudited)
(1) Organization and Business Activities
ViroPharma Incorporated (a development stage company) (the "Company") commenced
operations on December 5, 1994. The Company is a development stage
pharmaceutical company engaged in the discovery and development of new antiviral
medicines.
The Company is devoting substantially all of its efforts towards conducting drug
discovery and development, raising capital, conducting clinical trials, pursuing
regulatory approval for products under development, recruiting personnel 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 $60,190,365 through June 30, 1999. 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, 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.
Basis of Presentation
The information at June 30, 1999, and for the three and six months ended June
30, 1998 and 1999, is unaudited but includes all adjustments (consisting only of
normal recurring adjustments) which, in the opinion of management, are necessary
to state fairly the financial information set forth therein in accordance with
generally accepted accounting principles. The interim results are not
necessarily indicative of results to be expected for the full fiscal year.
These financial statements should be read in conjunction with the audited
financial statements for the year ended December 31, 1998 included in the
Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission.
(2) Comprehensive Loss
In 1998 the Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 requires that all
items defined as comprehensive income, including changes in the amounts of
unrealized gains and losses on available for sale securities, be shown as a
component of comprehensive loss. In the Company's annual financial statements,
comprehensive loss is presented as a separate financial statement. For interim
financial statements, the Company is permitted to disclose the information in
the footnotes to the financial statements. The disclosures are required for
comparative purposes. The only comprehensive income item the Company has is
unrealized gains and losses on available for sale securities.
The following reconciles net loss to comprehensive loss for the quarter and six-
month periods ended June 30, 1998 and 1999:
<TABLE>
<CAPTION>
Quarter ended Six-month period ended
June 30, June 30,
1998 1999 1998 1999
------------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net loss $ (5,631,864) (6,104,776) (10,062,208) (11,769,403)
Other comprehensive income:
Unrealized gains (losses) on
available for sale securities (154,783) (93,349) (185,863) (56,563)
------------- ----------- ------------ ------------
Comprehensive loss $ (5,786,647) (6,198,125) (10,248,071) (11,825,966)
============= =========== ============ ============
</TABLE>
6
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ViroPharma Incorporated
(A Development Stage Company)
Notes to Financial Statements
(3) Sale of Preferred Stock
On May 5, 1999, the Company completed the sale of 2,300,000 shares of Series A
Convertible Participating Preferred Stock ("preferred stock"). Net proceeds
approximated $13,800,000. In addition, the Company issued warrants to purchase
595,000 shares of common stock at $9.53 per share to the purchasers of the
preferred stock. The warrants expire on May 5, 2004. The preferred stock is
convertible into shares of common stock on a one-for-one basis (subject to
adjustment) at any time by the holder and under certain conditions by the
Company. There is a 5% dividend per annum associated with the preferred stock
in which the Company may choose to permanently defer payment, in which case the
dividend is added to the liquidation value and increases the conversion ratio.
The holders of the preferred stock have voting rights equivalent to the common
stockholders. In addition, the holders of the preferred stock have liquidation
rights equal to their original investment, subject to adjustment. As a result
of the difference in the price paid per share of preferred stock and the fair
market value per share of the underlying common stock at the date of the closing
of the transaction, the Company has reflected the amount of the beneficial
conversion feature in the Statement of Operations for the quarter and six-month
period ended June 30, 1999. The fair market value was determined using the
closing price as quoted on Nasdaq. The beneficial conversion feature aggregated
$4,140,000 and is included in the net loss allocable to common shareholders.
7
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ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our disclosure and analysis in this report contains some forward-looking
statements. Forward-looking statements give our current expectations or
forecasts of future events. You can identify these statements by the fact that
they do not relate strictly to historical or current facts. They use words such
as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe,"
and other words and terms of similar meaning in connection with any discussion
of future operating or financial performance. In particular, these include
statements relating to present or anticipated scientific progress, development
of potential pharmaceutical products, future revenues, capital expenditures,
research and development expenditures, future financings and collaborations,
personnel, manufacturing requirements and capabilities, and other statements
regarding matters that are not historical facts or statements of current
condition.
Any or all of our forward-looking statements in this report may turn out to
be wrong. They can be affected by inaccurate assumptions we might make or by
known or unknown risks and uncertainties. Many factors, including those
mentioned in the discussion below and those described in the "Risk Factors"
discussion of our annual report on Form 10-K for the year ended December 31,
1998 filed with the Securities and Exchange Commission, will be important in
determining future results. Consequently, no forward-looking statement can be
guaranteed. Actual future results may vary materially. We do not intend to
update our forward-looking statements to reflect future events or developments.
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 does not expect any revenues from product sales
for at least the next fifteen months, if at all. The Company has not been
profitable since inception and has incurred a cumulative net loss of $60,195,365
through June 30, 1999. 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, primarily due to expected increases in the Company's research and
development expenses, further clinical trials of the Company's most advanced
drug candidate, pleconaril (including any significant additional studies for
approval in the European Union, if any are required), and milestone payments
that may be payable under the terms of the Company's agreement with Sanofi, S.A.
("Sanofi") in respect of pleconaril. Also, the Company expects to incur expenses
related to its marketing and market research activities for pleconaril, its
development of a marketing and sales staff and further research and development
related to other product candidates. The Company's ability to achieve
profitability is dependent on a number of factors, including its ability to
develop and obtain regulatory approvals for its product candidates, successfully
commercialize such product candidates, which may include entering into
collaborative agreements for product development and commercialization, and
secure contract manufacturing services.
Liquidity and Capital Resources
The Company commenced operations in December 1994. The Company is a
development stage company and to date has not generated revenues from product
sales. The cash flows used in operations are primarily for research and
development activities and the supporting general and administrative expenses.
Through June 30, 1999, the Company has used approximately $51.3 million in
operating activities. The Company invests its cash in short-term investments.
Through June 30, 1999, the Company has used approximately $16.0 million in
investing activities, including $12.3 million in short-term investments and $3.7
million in equipment purchases and new construction. Through June 30, 1999, the
Company has financed its operations primarily through public offerings of Common
Stock, private placements of preferred stock, two bank loans, equipment lease
lines and a milestone advance totaling approximately $76.1 million. At June 30,
1999, the Company had cash and cash equivalents and short-term investments
aggregating approximately $20.6 million.
The Company leases its corporate and research and development facilities
under an operating lease expiring in 2008. The Company also has the right to
expand the facility and, under certain circumstances, to purchase the facility.
The Company has financed substantially all of its equipment under two master
lease agreements and two bank loans. The first bank loan, which the Company
entered into in February 1997, is for $600,000, is payable in equal annual
installments over 72 months and bears interest at 9%. The second bank loan,
which the Company entered into in December 1998, is for
8
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$500,000, is payable in equal annual installments over 60 months and bears
interest at 7.5%. The Company is required to repay amounts outstanding under the
two leases within periods ranging from 32 to 48 months. As of August 1, 1999,
outstanding borrowings under these arrangements were approximately $930,000.
Under the Company's agreement with Sanofi, the Company is required to make
certain payments to Sanofi, including royalties, as defined, should agreed-upon
future milestones be attained. The milestone events contemplate regulatory
submissions of new drug applications and regulatory approvals in various
jurisdictions. There can be no assurance that any such milestones will be
attained.
The Company and SELOC France entered into an Addendum to their Development
Agreement in 1998 (the "SELOC Addendum"). Under the SELOC Addendum, SELOC has
manufactured three validation batches of pleconaril drug substance. SELOC also
is assisting the Company under the SELOC Addendum in preparing the pleconaril
drug master file and is preparing certain documentation that will be required in
connection with the Company's New Drug Application for pleconaril. The Company
estimates that $0.7 million will be payable under the Addendum in 1999.
On October 9, 1997, the Company received $1,000,000 from Boehringer
Ingelheim Pharmaceuticals, Inc. ("BI") as an advance on a future milestone in
connection with a Collaborative Research Agreement (the "Agreement"). The
Agreement expired in August 1998. Such amount is due and payable in August
2000. The loan bears interest at 8.5% and is evidenced by a convertible
promissory note. If amounts due under the note are not paid as described in the
note, BI may convert the then outstanding principal balance and accrued interest
thereon into shares of the Company's common stock based on the last sale price
of the common stock on the date immediately prior to the date on which the
Company is notified of BI's intention to convert the promissory note.
The Company is currently expanding its research and development
capabilities at its current facility. The Company expects that it will invest
approximately $900,000 for this expansion over the next nine months.
The Company has incurred losses from its operations since inception. 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, primarily due to expected increases in the Company's research and
development expenses, further clinical trials and clinical development of the
Company's most advanced drug candidate, pleconaril (including any significant
additional studies for approval in the European Union, if any are required), and
milestone payments that may be payable under the terms of the Company's
agreement with Sanofi, S.A. in respect of pleconaril. Also, the Company expects
to incur expenses related to its marketing and market research activities for
pleconaril, its development of a marketing and sales staff and further research
and development related to other product candidates.
The Company needs to raise substantial additional funds to continue its
business activities and for the expansion of its facilities. The Company needs
additional financing to complete all clinical studies for pleconaril, for the
development and required testing of the Company's other product candidates, and
to develop its marketing and sales staffs. To obtain this financing, the
Company expects 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, the terms and prices of
any such financings may be significantly more favorable to the new investors
than those obtained by existing stockholders of the Company, and ownership
dilution to existing stockholders may result. Collaborative arrangements may
require the Company to grant product development programs or licenses to third
parties for products that the Company might otherwise seek to develop or
commercialize itself. There can be no assurance, however, that additional
financing will be available on acceptable terms from any source. If sufficient
additional financing is not available, the Company may need to delay, reduce or
eliminate current research and development programs or other aspects of its
business.
Results of Operations
Quarters ended June 30, 1999 and 1998
No revenues were earned by the Company during the quarter ended June 30,
1999. The Company earned milestone revenue of $750,000 during the quarter ended
June 30, 1998. Research and development expenses decreased to $5,233,702 for
the quarter ended June 30, 1999 from $5,819,081 for the quarter ended June 30,
1998. Research and development expenses for both periods were primarily incurred
for the conduct of clinical trials of pleconaril and the advancement of drug
candidates for the treatment of Hepatitis C and RSV pneumonia. Pleconaril is
the Company's most advanced drug candidate. General and administrative expenses
were $1,240,116 in the quarter ended June 30, 1999
9
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compared to $945,372 for the same period of 1998. This increase is related to
the medical education program being conducted in preparation for the potential
marketing of pleconaril. The net loss increased to $6,104,776 for the quarter
ended June 30, 1999 from $5,631,864 for the quarter ended June 30, 1998.
Six-months ended June 30, 1999 and 1998
No revenues were earned by the Company for the six-month period ended June
30, 1999. The Company earned milestone revenue of $750,000 for the six-month
period ended June 30, 1998. Research and development expenses increased to
$10,094,585 for the six-month period ended June 30, 1999 from $9,636,927 for the
six-month period ended June 30, 1998. Research and development expenses for both
periods were primarily incurred for the conduct of clinical trials of pleconaril
and the advancement of drug candidates for the treatment of Hepatitis C and RSV
pneumonia. Pleconaril is the Company's most advanced drug candidate. General and
administrative expenses were $2,394,332 in the six-month period ended June 30,
1999 compared to $1,878,645 for the same period of 1998. The increase in 1999 is
related to the medical education program being conducted in preparation for the
potential marketing of pleconaril. The net loss increased to $11,769,403 for the
six-month period ended June 30, 1999 from $10,062,208 for the six-month period
ended June 30, 1998.
Year 2000 Impact
The Company utilizes a number of computer programs across its entire
operation, including computer programs of third parties with whom the Company
does business. Year 2000 data processing issues typically are the result of
software and firmware being written using two digits rather than four to define
the applicable year. Any of the programs or computer-supported operations of
the Company or of third parties with whom the Company does business that
recognize a date using "00" as the year 1900 rather than the year 2000 could
result in errors or system failures. Such errors or system failures could
result in disruptions in research and development operations or interruptions in
normal business activities.
The Company has completed its internal assessment of the potential impact
of the Year 2000 issue on the ability of the Company's computerized information
systems and non-information systems to accurately process information that may
be date-sensitive. The Company believes that, with relatively minor
modifications to its existing software and hardware, Year 2000 data processing
requirements will not pose material operational issues to the Company.
The Company is contacting its significant suppliers and service providers
to determine the degree to which such parties are Year 2000 compliant. To date,
the Company has not been advised of material Year 2000 issues by any of these
parties. In addition, all contracts between the Company and third parties
providing drug development or manufacturing services to ViroPharma require such
third parties be in compliance with the laws, regulations and guidelines of the
Food, Drug and Cosmetic Act (which requires appropriate steps to eliminate Year
2000 computer risks).
The Company believes that its most likely "worst case scenario" regarding
Year 2000 issues involves the failure of third party suppliers and service
providers, particularly contract research organizations ("CRO's") engaged by
the Company to monitor clinical trials, to be Year 2000 compliant. If such
third parties are not Year 2000 compliant, or are unable to remediate any such
noncompliance in a timely manner, the Company's business or operation could be
adversely effected. In the event that the systems used by the Company's CRO's
are not Year 2000 compliant, and the data collected by such CRO's on behalf of
the Company is corrupted or not available, the Company will seek to recreate
such data from the source documents, either by itself or by engaging others to
perform the task on its behalf. If the Company is required to recreate such
data, significant delays in reporting the results of the Company's clinical
trials could result.
To date, the Company has not expended material amounts on the Year 2000
issue. While the Company believes that costs, if any, of addressing Year 2000
issues presented by the Company's internal systems will not have a material
adverse impact on the Company's financial position or results of operations,
there can be no assurance that the systems of third parties that are relied on
by the Company will be Year 2000 compliant on or before January 1, 2000, or that
the effect of any noncompliance will not have an adverse effect on the
operations of the Company. The Company also faces the risks which the Year 2000
issue poses to industry generally, such as communications, transportation and
utility service interruptions.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
10
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PART II - OTHER INFORMATION
---------------------------
ITEM 2. Changes in Securities.
On May 5, 1999 (the "Issue Date"), the Company sold 2,300,000 shares of
Series A Convertible Participating Preferred Stock, par value $.001 per share
(the "Series A Stock"), to Perseus-Soros BioPharmaceutical Fund, L.P., for $14.3
million in a private placement transaction. The Series A Stock is convertible
into shares of the Company's common stock, par value $.002 per share (the
"Common Stock"), on a one for one basis, subject to adjustment for accrued but
unpaid dividends and upon certain other events, at any time at the option of the
holder. The Series A Stock is convertible into shares of Common Stock at the
option of the Company if, at any time after the second anniversary of the Issue
Date, the average of the daily closing prices per share of Common Stock for 90
consecutive days is at least 2.5 times the original purchase price per share.
The Series A Stock is entitled to receive a 5% dividend per annum which the
Company may choose to permanently defer, in which case the dividend is added to
the liquidation value and increases the conversion ratio. In this same
transaction, the Company issued warrants to purchase up to 595,000 shares of
Common Stock at a price of $9.53 per share. The warrants are exercisable through
May 5, 2004. The Company believes that these transactions were exempt from
registration under Section 4(2) of the Securities Act of 1933, as amended,
because the transactions did not involve a public offering.
ITEM 4. Submission of Matters to a Vote of Security Holders.
On May 14, 1999, the Company held its annual stockholders meeting (the
"Meeting"). In connection with the Meeting, the Company solicited proxies for
(1) the election of Dr. Frank Baldino and Mr. Claude Nash as directors of the
Company, and to ratify the elections of directors previously elected by the
Board of Directors to fill vacancies in the Board, (2) to approve an amendment
to the Company's Amended and Restated Certificate of Incorporation to permit the
Board to amend the Company's Bylaws, subject to certain restrictions set forth
in the Bylaws, (3) to approve an amendment to the Company's Bylaws to permit
the Board to amend the Company's Bylaws, subject to certain restrictions, and
(4) to approve the transfer of certain of the Company's assets into one or more
wholly-owned subsidiaries of the Company. The record date for determining the
stockholders entitled to receive notice of, and vote at, the Meeting was April
1, 1999 (the "Record Date"). The Company had 11,572,144 shares of its Common
Stock outstanding as of the Record Date, of which 10,206,107 shares were
represented at the Meeting by proxy and 800 shares were represented in person.
Such shares were voted at the Meeting as follows:
<TABLE>
<CAPTION>
Number of Votes BROKER
FOR AGAINST WITHHELD ABSTAIN NON-VOTES
<S> <C> <C> <C> <C> <C>
Election to the Board:
Dr. Frank Baldino 9,561,204 637,703
Mr. Claude Nash 9,558,254 640,653
Ratification of Previously Elected Directors:
Mr. Robert Glaser 9,564,254 634,653
Mr. David Williams 9,564,254 634,653
Mr. Howard Pien 9,564,054 634,853
Approval of Amendment to 7,199,357 283,592 80,533 2,643,608
Amended and Restated
Certificate of Incorporation
Approval of Bylaws Amendment 7,197,357 287,950 78,000 2,643,600
Approval of Transfer of 7,433,847 40,989 78,471 2,643,600
Assets to Subsidiary
</TABLE>
11
<PAGE>
ITEM 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits:
3.1 Amended and Restated Certificate of Incorporation of the
Company, as amended by a Certificate of Amendment of Amended and
Restated Certificate of Incorporation dated May 18, 1999
3.3 Amended and Restated By-Laws of the Company.
10.23 Letter Agreement dated June 7, 1999 between the Company and
Perseus-Soros BioPharmaceutical Fund, L.P.
27 Financial Data Schedule
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the quarter ended June
30, 1999.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VIROPHARMA INCORPORATED
Date: August 12, 1999 By: /s/ Claude H. Nash
------------------------------
Claude H. Nash
President, Chief Executive Officer and
Chairman of the Board of Directors
(Principal Executive Officer)
By: /s/ Vincent J. Milano
----------------------------
Vincent J. Milano
Vice President, Chief Financial Officer
and Treasurer
(Principal Financial and Accounting
Officer)
13
<PAGE>
EXHIBIT INDEX
- --------------------------------------------------------------------------------
Exhibit Description
3.1 Amended and Restated Certificate of
Incorporation of the Company, as amended by
a Certificate of Amendment of Amended and
Restated Certificate of Incorporation dated
May 18, 1999
3.3 Amended and Restated By-Laws of the Company.
10.23 Letter Agreement dated June 7, 1999 between
the Company and Perseus-Soros
BioPharmaceutical Fund, L.P.
27 Financial Data Schedule
14
<PAGE>
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
VIROPHARMA INCORPORATED
VIROPHARMA INCORPORATED, (the "Corporation"), a corporation organized and
existing under of the General Corporation Law of the State of Delaware, does
hereby certify:
FIRST: That the board of directors of the Corporation (the "Board of
Directors"), by unanimous written consent filed with the minutes of proceedings
of the Board of Directors, duly adopted a resolution declaring advisable the
amendment of the Amended and Restated Certificate of Incorporation of the
Corporation and submitted the same to the stockholders of the Corporation for
approval. The resolution setting forth the proposed amendment is as follows:
RESOLVED, that the Amended and Restated Certificate of Incorporation of the
Corporation shall be amended by adding the following Article "SEVENTH"
thereto following the Article thereof numbered "SIXTH":
"SEVENTH: In furtherance of the powers conferred by the General Corporation
Law of the State of Delaware, the Board of Directors of the Corporation is
expressly authorized and empowered to make, alter, amend and repeal the
Bylaws of the Corporation, except as otherwise provided or permitted in the
Bylaws of the Corporation or under the General Corporation Law of the State
of Delaware."
SECOND: That the stockholders of the Corporation have duly approved the
aforesaid amendment in accordance with the provisions of (S)212 of the General
Corporation Law of the State of Delaware.
THIRD: That the aforesaid amendment was duly adopted in accordance with
the provisions of (S)242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, Viropharma Incorporated has caused this Certificate of
Amendment to be signed by an authorized officer this 18th day of May, 1999.
VIROPHARMA INCORPORATED
/s/ Thomas F. Doyle
----------------------------------
Thomas F. Doyle
Vice President and General Counsel
<PAGE>
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
VIROPHARMA INCORPORATED
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 1013 Centre Road, Wilmington, Delaware 19805,
County of New Castle, 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
$.001 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:
-2-
<PAGE>
(a) The number of shares constituting that series and the
distinctive designation of that series;
(b) The dividend rate on the shares of that series, if any,
whether dividends shall be cumulative, 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 relative 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 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 serve 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:
-3-
<PAGE>
(i) 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.
(j) 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.
(k) 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. Any 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.
-4-
<PAGE>
AMENDMED AND RESTATED
BY-LAWS
OF
VIROPHARMA INCORPORATED
-------------------------------------------------------------------------------
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.
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
<PAGE>
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 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
2
<PAGE>
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 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. At each
-----------------------------------------
annual meeting of Stockholders, the Stockholders shall elect directors, each to
hold office for the term applicable to the class to which such director is
elected in accordance with the Certificate of Incorporation 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
3
<PAGE>
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. Each
director elected to fill a vacancy in the Board of Directors shall complete the
term of office of the director who has been succeeded or until his successor is
elected and qualified or until his earlier resignation or removal. In the case
of an election of a new director to fill a directorship created by an
enlargement of the Board, the Board shall, in such election, assign the class of
directors to which such additional director is being elected in accordance with
the Certificate of Incorporation, and each director so elected shall hold office
for the same term as the other members of the class to which the director is
assigned.
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 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, a majority 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
4
<PAGE>
if 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.
5
<PAGE>
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 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.
6
<PAGE>
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.
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
7
<PAGE>
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 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 contract 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.
Section 6.7. Amendment of By-laws. Except with respect to Sections 1.2,
--------------------
1.3, 1.7, 1.10 and 6.4 of these by-laws, for which the amendment or repeal
thereof, or adoption of any provision inconsistent therewith, shall require the
approval of a majority of the outstanding shares of capital stock of the
Corporation, or any amendment to Section 2.2 that would permit the removal of a
director only for cause or by a supermajority vote of the stockholders, which
amendment also shall require the approval of a majority of the outstanding
shares of capital stock of the Corporation, these by-laws may be amended or
repealed, and new by-laws made, by the
8
<PAGE>
Board of Directors without the approval of the majority of the outstanding
shares of capital stock of the Corporation.
9
<PAGE>
June 7, 1999
VIA FACSIMILE AND FEDERAL EXPRESS
- ---------------------------------
Perseus-Soros BioPharmaceutical Fund, LP
c/o Perseus Capital, LLC
The Army and Navy Club Building
1627 I Street, N.W., Suite 610
Washington D.C. 20006
Attention: Christopher D. Earl, Ph.D.
Kenneth M. Socha, Esq.
Soros Fund Management, LLC
888 Seventh Avenue
New York, New York 10106
Attention: Michael C. Neus, Esq.
Neal Moszkowski
Gentleman:
Reference is made to that certain Investment Agreement (the
"Agreement") dated May 5, 1999 between ViroPharma Incorporated ("Company") and
Perseus-Soros BioPharmaceutical Fund, LP ("Purchaser"). Capitalized terms used
in this letter and not defined herein shall have the meanings ascribed to them
in the Agreement.
1. Section 5.3(a) of the Agreement is hereby amended by adding
immediately after the first sentence therein the following:
"If the Purchaser or its Affiliates no longer hold, in the aggregate, at
least: (i) 10.0% of the outstanding Common Stock; or (ii) 1.5 million
shares of the Common Stock (with appropriate adjustment made for any stock
dividend, split-up or subdivision or any combination or reclassification
made or effected subsequent to the Closing Date), in each case, assuming
that the Securities or other rights convertible into or exchangeable or
exercisable for shares of the Common Stock have been converted, exchanged
or exercised, then upon written request of the Company, the Purchaser
Director shall resign from the Board of Directors and upon such
resignation, (i) the Purchaser shall no longer be entitled to a seat on the
Board of Directors pursuant to this Section 5.3 and (ii) the Company shall
no longer be required to use its best efforts to ensure that the Company's
Board of Directors shall consist of at least one Purchaser Director."
<PAGE>
June 7, 1999
Page 2
2. Notwithstanding anything to the contrary set forth in Section 5.9 of
the Agreement, by our signatures below, each of the Company and Purchaser agrees
that, as soon as practicable after the date hereof but no later than June 15th,
the Board of Directors shall have appointed a Purchaser Director to the Board of
Directors to serve until the Company's 2002 annual meeting.
This letter shall not constitute a waiver, amendment or modification of any
other provision of the Agreement not expressly referred to in the foregoing
paragraphs and shall not be construed as a waiver or consent to any further or
future action on the part of the Company that would require a waiver or consent
of the Purchaser. Except as expressly amended or modified herein, the
provisions of the Agreement are and shall remain in full force and effect.
This letter may be executed by one or more of the parties hereto on any
number of separate counterparts and all such counterparts shall be deemed to be
one and the same instrument. Paragraph 2 of this letter shall be effective
immediately, and Paragraph 1 of this letter shall be effective upon the Board of
Directors appointment of Jeremy M. Levin as the Purchaser Director to the Board
of Directors to serve until the Company's 2002 annual meeting. This letter
shall be governed by and construed in accordance with the internal laws of the
State of New York, without regard to principles of conflicts of law.
Sincerely,
VIROPHARMA INCORPORATED
/s/ Thomas F. Doyle
-------------------
Thomas F. Doyle
Vice President, General Counsel
ACKNOWLEDGED AND AGREED:
PERSEUS-SOROS BIOPHARMACEUTICAL FUND, LP
By: Perseus-Soros Partners, LLC,
General Partner
By: Perseus BioTech Fund Partners, LLC,
Member
By: /s/ Kenneth M. Socha
---------------------
Name: Kenneth M. Socha
Title: Member
cc (via facsimile): David R. King, Esq.
Bruce A. Gutenplan, Esq.
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<PAGE>
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<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> APR-01-1999 JAN-01-1999
<PERIOD-END> JUN-30-1999 JUN-30-1999
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<SECURITIES> 12,323,635 12,323,635
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<CURRENT-ASSETS> 20,903,335 20,903,335
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<INTEREST-EXPENSE> 39,971 78,342
<INCOME-PRETAX> (10,244,776) (15,909,403)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (10,244,776) (15,909,403)
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<NET-INCOME> (10,244,776) (15,909,403)
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