<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 March 31, 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 May 12, 1999: 11,572,144 shares.
<PAGE>
VIROPHARMA INCORPORATED
INDEX
PART I. FINANCIAL INFORMATION
Page
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Item 1. Financial Statements:
Balance Sheets at December 31, 1998 and March 31, 1999 3
Statements of Operations for the three months ended March 31, 1998 4
and 1999 and the period from December 5, 1994 (inception)
to March 31, 1999
Statements of Cash Flows for the three months ended March 31, 1998 5
and 1999 and the period from December 5, 1994 (inception)
to March 31, 1999
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition 8
and results of operations.
PART II. OTHER INFORMATION
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
<PAGE>
PART I. FINANCIAL INFORMATION
- ---------------------------------
ITEM 1. FINANCIAL STATEMENTS
ViroPharma Incorporated
(A Development Stage Company)
Balance Sheets
December 31, 1998 and March 31, 1999
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
----------------- ----------------
Assets Audited Unaudited
----------------- ----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,076,682 4,913,110
Short-term investments 18,935,100 9,978,310
Notes receivable from officers - current 39,205 39,205
Other current assets 435,054 305,356
----------------- ----------------
Total current assets 20,486,041 15,235,981
Equipment and leasehold improvements, net 2,477,105 2,477,771
Restricted investment 550,000 550,000
Notes receivable from officers - noncurrent 62,356 52,555
Other assets 81,899 81,899
----------------- ----------------
Total assets $ 23,657,401 18,398,206
================= ================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable 1,442,756 2,499,830
Loan payable - current 200,000 200,000
Obligation under capital lease - current 50,379 36,639
Accrued expenses and other current liabilities 7,302,511 6,462,945
----------------- ----------------
Total current liabilities 8,995,646 9,199,414
Loan payable - non-current 1,822,917 1,810,833
Obligation under capital lease - noncurrent 2,807 -
----------------- ----------------
10,821,370 11,010,247
----------------- ----------------
Stockholders' equity:
Preferred stock, par value $.001 per share. Authorized 5,000,000
shares at December 31, 1998 and March 31, 1999; none issued or
outstanding - -
Common stock, par value $.002 per share. Authorized 27,000,000
shares at December 31, 1998 and March 31, 1999; issued and
outstanding 11,516,794 shares at December 31, 1998 and 11,572,144
at March 31, 1999 23,034 23,144
Additional paid-in capital 61,373,998 61,465,203
Deferred compensation (247,601) (159,147)
Unrealized gains on available for sale securities 107,562 144,348
Deficit accumulated during the development stage (48,420,962) (54,085,589)
----------------- ----------------
Total stockholders' equity 12,836,031 7,387,959
----------------- ----------------
Commitments
Total liabilities and stockholders' equity $ 23,657,401 18,398,206
================= ================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
ViroPharma Incorporated
(A Development Stage Company)
Statements of Operations
(unaudited)
Three months ended March 31, 1998 and 1999 and the
period from December 5, 1994 (inception) to March 31, 1999
<TABLE>
<CAPTION>
Period from
December 5, 1994
Three months ended (inception) to
March 31, March 31,
1998 1999 1999
-------------- -------------- ----------------
<S> <C> <C> <C>
Revenues:
License fee and milestone revenue $ - - 4,000,000
Grant revenue - - 526,894
-------------- -------------- ----------------
Total revenues - - 4,526,894
-------------- -------------- ----------------
Operating expenses incurred in the
development stage:
Research and development 3,817,846 4,860,883 50,620,679
General and administrative 933,273 1,154,216 11,627,238
-------------- -------------- ----------------
Total operating expenses 4,751,119 6,015,099 62,247,917
-------------- -------------- ----------------
Loss from operations (4,751,119) (6,015,099) (57,721,023)
Interest income, net 320,775 350,472 3,635,434
-------------- -------------- ----------------
Net loss $ (4,430,344) (5,664,627) (54,085,589)
============== ============== ================
Basic and diluted net loss per share: (0.39) (0.49)
============== ==============
Shares used in computing basic and diluted
net loss per share: 11,475,328 11,554,993
============== ==============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
VIROPHARMA INCORPORATED
(A Development Stage Company)
Statements of Cash Flows
(unaudited)
Three months ended March 31, 1998 and 1999 and the
period from December 5, 1994 (inception) to March 31, 1999
<TABLE>
<CAPTION>
Period from
December 5, 1994
Three months ended (inception) to
March 31, March 31,
1998 1999 1999
-------------- -------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (4,430,344) (5,664,627) (54,085,589)
Adjustments to reconcile net loss to net cash
used in operating activities:
Non-cash compensation expense 51,156 88,454 673,939
Non-cash warrant value 3,984 3,984 145,776
Non-cash consulting expense 6,650 4,860 46,975
Depreciation and amortization expense 91,688 125,729 900,194
Changes in assets and liabilities:
Other current assets 97,631 129,698 (305,356)
Notes receivable from officers (13,171) 9,801 (91,760)
Other assets - - (81,899)
Accounts payable (210,260) 1,057,074 2,499,830
Accrued expenses and other current liabilities (404,428) (818,317) 6,590,444
-------------- -------------- ----------------
Net cash used in operating activities (4,807,094) (5,063,344) (43,707,446)
Cash flows from investing activities:
Purchase of equipment (585,809) (126,395) (2,516,991)
Construction in progress - - (860,975)
Purchase of short-term investments (8,991,647) - (113,669,858)
Sales of short-term investments - - 9,680,414
Maturities of short-term investments 11,835,739 8,993,576 93,605,482
-------------- -------------- ----------------
Net cash (used in) provided by investing activities 2,258,283 8,867,181 (13,761,928)
Cash flows from financing activities:
Net proceeds from issuance of preferred stock - - 13,931,243
Net proceeds from issuance of common stock 8,711 82,471 45,887,143
Proceeds from milestone advance - - 1,000,000
Proceeds from loans payable - - 1,100,000
Payment of loans payable (25,000) (33,333) (216,666)
Proceeds received on notes receivable - - 1,625
Proceeds from notes payable - - 692,500
Payment of notes payable - - (50,000)
Obligation under capital lease (14,694) (16,547) 36,639
-------------- -------------- ----------------
Net cash provided by (used in) financing activities (30,983) 32,591 62,382,484
Net increase (decrease) in cash and cash equivalents (2,579,794) 3,836,428 4,913,110
Cash and cash equivalents at beginning of period 4,204,330 1,076,682 -
-------------- -------------- ----------------
Cash and cash equivalents at end of period $ 1,624,536 4,913,110 4,913,110
============== ============== ================
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 (31,080) 36,786 144,348
</TABLE>
See accompanying notes to financial statements.
<PAGE>
ViroPharma Incorporated
(A Development Stage Company)
Notes to Financial Statements
March 31, 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 $54,085,589 through March 31, 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 March 31, 1999 and for the three months ended March 31, 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 three-months
ended March 31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
------------ -----------
<S> <C> <C>
Net loss $(4,430,344) (5,664,627)
Other comprehensive income:
Unrealized gains (losses) on
available for sale securities (31,080) 36,786
----------- ----------
Comprehensive loss $(4,461,424) (5,627,841)
=========== ==========
</TABLE>
<PAGE>
ViroPharma Incorporated
(A Development Stage Company)
Notes to Financial Statements
(3) Subsequent Event
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 $13,700,000. 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.
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. The issuance of these securities may
result in a significant beneficial conversion feature which would increase net
loss per share in the second quarter of 1999.
<PAGE>
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-month period. The Company has not been profitable
since inception and has incurred a cumulative net loss of $54,085,589 through
March 31, 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. 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
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.
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 March 31, 1999, the Company has used approximately $43.7 million in
operating activities. The Company invests its cash in short-term investments.
Through March 31, 1999, the Company has used approximately $13.2 million in
investing activities, including $9.8 million in short-term investments and $3.4
million in equipment purchases and new construction. Through March 31, 1999, the
Company has financed its operations primarily through public offerings of Common
Stock, private placements of redeemable preferred stock, two bank loans,
equipment lease lines and a milestone advance totaling approximately $62.4
million. At March 31, 1999, the Company had cash and cash equivalents and short-
term investments aggregating approximately $14.9 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 was consummated
in February 1997, is for $600,000, is payable in equal annual installments over
<PAGE>
72 months and bears interest at approximately 9%. The second bank loan, which
was consummated in December 1998, is for $500,000, is payable in equal annual
installments over 60 months and bears interest at approximately 7.5% The Company
is required to repay amounts outstanding under the two leases within periods
ranging from 32 to 48 months. As of May 1, 1999, outstanding borrowings under
these arrangements are approximately $1,000,000.
Under the Company's agreement with Sanofi S.A. ("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 two validation batches of pleconaril drug substance, and the
Company anticipates that SELOC will manufacture a third validation batch of bulk
drug substance in 1999. 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 $1.0 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 such
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.
In May 1999, the Company completed the sale of 2.3 million shares of
preferred stock for net proceeds approximately $13.7 million.
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 March 31, 1999 and 1998
No revenues were earned by the Company for the quarters ended March 31,
1999 and March 31, 1998.
Research and development expenses increased to $4,860,883 for the quarter
ended March 31, 1999 from $3,817,846 for the quarter ended March 31, 1998. The
increase was principally due to the cost of multiple clinical trials
<PAGE>
related to pleconaril being conducted in the quarter ended March 31, 1999
compared to one clinical trial related to pleconaril being conducted in the
quarter ended March 31, 1998.
General and administrative expenses increased to $1,154,216 for the quarter
ended March 31, 1999 from $933,273 for the quarter ended March 31, 1998. The
increase was principally due to increased salary expenses and market research
costs.
The net loss increased to $5,664,627 for the quarter ended March 31, 1999
from $4,430,344 for the quarter ended March 31, 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 has contacted 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). However, 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. 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 has not yet fully developed a contingency plan to address
situations that may arise if systems on which we rely, and particularly the
systems used by third parties with which the Company does business, are not Year
2000 compliant. The Company can not be sure that it will be able to develop a
contingency plan that will adequately address these issues. The Company also
faces the risks which the Year 2000 issue poses to industry generally, such as
communications, transportation and utility service interruptions.
PART II - OTHER INFORMATION
----------------------------
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
ITEM 6. Exhibits and Reports on Form 8-K
(a) List of Exhibits:
3.4 Certificate of Designation establishing and designating the Series A
Convertible Participating Preferred Stock.
4.2 Amendment No. 1 to Rights Agreement
10.21 Investment Agreement among Viropharma Incorporated and Perseus-Soros
Biopharmaceutical Fund, L.P. dated May 5, 1999
10.22 Viropharma Incorporated Common Stock Purchase Warrant
<PAGE>
27 Financial Data Schedule
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the quarter ended March
31, 1999.
<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: May 14, 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)
<PAGE>
Exhibit Index
-------------
Exhibit Description
3.4 Certificate of Designation establishing and designating the Series A
Convertible Participating Preferred Stock.
4.2 Amendment No. 1 to Rights Agreement
10.21 Investment Agreement among Viropharma Incorporated and Perseus-Soros
Biopharmaceutical Fund, L.P. dated May 5, 1999
10.22 Viropharma Incorporated Common Stock Purchase Warrant
27 Financial Data Schedule
<PAGE>
EXHIBIT 4.1
VIROPHARMA INCORPORATED
CERTIFICATE OF THE POWERS, DESIGNATIONS,
PREFERENCES AND RIGHTS OF THE
SERIES A CONVERTIBLE PARTICIPATING PREFERRED STOCK,
PAR VALUE $.001 PER SHARE
PURSUANT TO SECTION 151 OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
The following resolution was duly adopted by the Board of Directors of
ViroPharma Incorporated, a Delaware corporation (the "Company"), pursuant to the
-------
provisions of Section 151 of the General Corporation Law of the State of
Delaware, on May 5, 1999, by the unanimous written consent of the Board of
Directors:
WHEREAS, the Board of Directors of the Company is authorized, subject
to limitations prescribed by law and the provisions of the Certificate of
Incorporation (as defined below) of the Company, to provide for the issuance of
all or any of the shares of Preferred Stock, par value $.001 per share, 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 powers, designation, preferences
and relative, participating, optional or other special rights of the shares of
each such series and the qualifications or restrictions thereof; and
WHEREAS, it is the desire of the Board of Directors, pursuant to its
authority as aforesaid, to authorize and fix the terms of a series of preferred
stock and the number of shares constituting such series.
NOW, THEREFORE, BE IT RESOLVED that, pursuant to the authority
expressly granted to the Board of Directors of the Company by the Certificate of
Incorporation of the Company, and pursuant to Section 151(g) of the General
Corporation Law of the State of Delaware, there be created from the 5,000,000
shares of Preferred Stock, par value $.001 per share (the "Preferred Stock"), of
---------------
the Company authorized to be issued pursuant to the Certificate of
Incorporation, a series of Preferred Stock consisting of 2,300,000 shares of
Series A Convertible Participating Preferred Stock (the "Series A Preferred
------------------
Stock"), the voting powers, designations, preferences and relative,
- -----
participating, optional or other special rights of which, and qualifications,
limitations or restrictions thereof, shall be as follows:
1. Definitions. As used herein, the following terms shall have the
-----------
following meanings:
1.1 "Affiliate" shall mean, with respect to any Person, any
---------
other Person that, directly or indirectly, controls, is controlled by, or is
under common
<PAGE>
2
control with, such first Person. For the purpose of this definition, "control"
shall mean, as to any Person, the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of voting
securities, by contract or otherwise.
1.2 "Board of Directors" shall mean the Board of Directors of
-------------------
the Company, as constituted from time to time.
1.3 "Business Day" shall mean any day that is not a Saturday, a
-------------
Sunday or a day on which banking institutions are not required to be open in New
York City.
1.4 "Certificate of Incorporation" shall mean the Second
----------------------------
Amended and Restated Certificate of Incorporation of the Company, as amended
through the date hereof.
1.5 "Closing Price" of the Common Stock as of any day, means (i)
-------------
the last reported sale price of such stock (regular way) or, in case no such
sale takes place on such day, the average of the closing bid and asked prices,
in either case as reported on the principal national securities exchange on
which the Common Stock is listed or admitted to trading or (ii) if the Common
Stock is not listed or admitted to trading on any national securities exchange,
the last reported sale price or, in case no such sale takes place on such day,
the average of the highest reported bid and lowest reported asked quotation for
the Common Stock, in either case reported on the National Association of
Securities Dealers, Inc. Automated Quotation System ("NASDAQ"), or a similar
------
service if NASDAQ is no longer reporting such information.
1.6 "Common Stock" shall mean the class of Common Stock, par
------------
value $.002 per share, of the Company or any other class of stock resulting from
successive changes or reclassifications of such Common Stock consisting solely
of changes in par value, or from par value to no par value, or as a result of a
subdivision or combination.
1.7 "Common Stock Conversion Rate" shall mean, as of any date, a
----------------------------
rate for each share of Series A Preferred Stock equal to (i) the Liquidation
Value thereof plus all accrued and unpaid dividends thereon pursuant to Section
2.2 herein, divided by (ii) the Conversion Price in effect as of such date.
1.8 "Conversion Price" shall mean $6.20 per share of Series A
----------------
Preferred Stock, subject to adjustment as provided herein.
<PAGE>
3
1.9 "Current Market Price" shall mean, with respect to each
---------------------
share of Common Stock as of any date, the average of the daily Closing Prices
per share of Common Stock for the 30 consecutive Trading Days prior to such
date; provided that, if on any such date the shares of Common Stock are not
--------
listed or admitted for trading on any national securities exchange or quoted by
NASDAQ or a similar service, the Current Market Price for a share of Common
Stock shall be the fair market value of such share as determined in good faith
by the Board of Directors of the Company. If the Board of Directors is unable to
determine the fair market value, or if the holders of a majority in interest of
the Series A Preferred Stock disagree with the Board's determination of fair
market value by written notice delivered to the Company within five (5) Business
Days after the Board's determination thereof is communicated in writing to such
holders, which notice specifies a majority-in-interest of such holders'
determination of fair market value, then the Company and a majority-in-interest
of such holders shall select an Independent Financial Expert which shall
determine such fair market value. If the Company and such holders are unable to
agree upon an Independent Financial Expert within fifteen (15) days after the
request by such holders, the Company, on the one hand, and such holders, on the
other, shall each select an Independent Financial Expert within five (5) days
following the expiration of such fifteen (15) day period, and these two
Independent Financial Experts shall select a third Independent Financial Expert.
The determination of fair market value by such Independent Financial Expert
shall be final, binding and conclusive on the Company and all holders of the
Series A Preferred Stock. All costs and fees of any Independent Financial
Experts retained in accordance with the foregoing shall be borne by the Company.
1.10 "Dividend Amount" shall mean an amount per share of Series
---------------
A Preferred Stock (rounded to the nearest $ .01) equal to $50 per $1,000
Liquidation Value of Series A Preferred Stock at all times after the Issue Date.
1.11 "Dividend Rate" shall mean 5.0% per annum beginning on the
-------------
Issue Date of the Series A Preferred Stock.
1.12 "Exchange Act" shall mean the Securities Exchange Act of
------------
1934, as amended.
1.13 "Independent Financial Expert" means an independent
----------------------------
nationally recognized investment banking firm.
1.14 "Issue Date" shall mean the Closing Date (as defined in the
----------
Investment Agreement).
1.15 "Investment Agreement" shall mean the Investment Agreement,
--------------------
dated as of May 5, 1999, between the Company and Perseus-Soros
<PAGE>
4
BioPharmaceutical Fund, LP, a Delaware limited partnership, as amended from time
to time.
1.16 "Junior Stock" shall mean the Common Stock and the shares
------------
of any other class or series of stock of the Company which, by the terms of the
Certificate of Incorporation or of the instrument by which the Board of
Directors, acting pursuant to authority granted in the Certificate of
Incorporation, shall fix the relative rights, preferences and limitations
thereof, shall be junior to the Series A Preferred Stock in respect of the right
to receive dividends and to participate in any distribution of assets other than
by way of dividends.
1.17 "Liquidation Value" shall mean $6.20 per share of Series A
-----------------
Preferred Stock, subject to adjustment as provided herein.
1.18 "Parity Stock" shall mean the shares of any other class or
------------
series of stock of the Company which, by the terms of the Certificate of
Incorporation or of the instrument by which the Board of Directors, acting
pursuant to authority granted in the Certificate of Incorporation, shall fix the
relative rights, preferences and limitations thereof, shall, in the event that
the stated dividends thereon are not paid in full, be entitled to share ratably
with the Series A Preferred Stock in the payment of dividends, including
accumulations, if any, in accordance with the sums which would be payable on
such shares if all dividends were declared and paid in full, and shall, in the
event that the amounts payable thereon on liquidation are not paid in full, be
entitled to share ratably with the Series A Preferred Stock in any distribution
of assets other than by way of dividends in accordance with the sums which would
be payable in such distribution if all sums payable were discharged in full;
provided, however, that the term "Parity Stock" shall be deemed to refer (i) in
- -------- ------- ------------
Section 2.3 hereof, to any stock which is Parity Stock in respect of the right
to receive dividends and (ii) in Section 5 hereof, to any stock which is Parity
Stock in respect of any distribution of assets other than by way of dividends.
1.19 "Person" shall mean any individual, firm, corporation,
------
partnership, limited liability company or partnership, trust, incorporated or
unincorporated association, joint venture, joint stock company, government (or
an agency or political subdivision thereof) or other entity of any kind, and
shall include any successor (by merger or otherwise) of such entity.
1.20 "Pro Rata Repurchase" shall mean any purchase of shares of
-------------------
Common Stock by the Company or by any of its subsidiaries whether for cash,
shares of capital stock of the Company, other securities of the Company,
evidences of indebtedness of the Company or any other Person or any other
property (including, without limitation, shares of capital stock, other
securities or evidences of indebtedness of a subsidiary of the Company), or any
combination thereof, effected while any of the
<PAGE>
5
shares of Series A Preferred Stock are outstanding, which purchase is subject to
Section 13(e) of the Exchange Act or is made pursuant to an offer made available
to all holders of Common Stock.
1.21 "Senior Stock" shall mean the shares of any class or
------------
series of stock of the Company which, by the terms of the Certificate of
Incorporation or of the instrument by which the Board of Directors, acting
pursuant to authority granted in the Certificate of Incorporation, shall fix the
relative rights, preferences and limitations thereof, shall be senior to the
Series A Preferred Stock in respect of the right to receive dividends or to
participate in any distribution of assets other than by way of dividends.
1.22 "Trading Day" shall mean, so long as the Common Stock is
-----------
listed or admitted to trading on a national securities exchange, a day on which
the principal national securities exchange on which the Common Stock is listed
is open for the transaction of business, or, if the Common Stock is not so
listed or admitted for trading on any national securities exchange, a day on
which NASDAQ is open for the transaction of business.
2. Dividends.
---------
2.1 The holders of the outstanding shares of Series A Preferred
Stock shall be entitled to receive quarterly dividends, when, as and if declared
by the Board of Directors out of funds legally available therefor. Each
quarterly dividend shall be an amount per share (rounded to the nearest $.01)
equal to 0.25 multiplied by the Dividend Amount and shall be payable on the last
day of March, June, September and December in each year (each a "Dividend
--------
Payment Date") to the holders of record of Series A Preferred Stock at the close
- ------------
of business on the preceding Business Day, or such other dates as are fixed by
the Board Directors within ten (10) days prior to the Dividend Payment Date
(each a "Record Date"). Such dividends shall become payable beginning on the
-----------
first Dividend Payment Date for which the Record Date is subsequent to the Issue
Date. Dividends on each share of Series A Preferred Stock shall be cumulative
and shall accrue on a day-to-day basis, whether or not earned, from and after
the day immediately succeeding the date on which such share was issued, and
shall be payable in cash (except upon conversion). Dividends payable for any
partial dividend period shall be computed on the basis of actual days elapsed
over a 365 day year. The Company, in its sole discretion, may elect not to pay
such dividends in cash when due, in which case such dividends shall be
automatically added to the Liquidation Value of the Series A Preferred Stock as
of any such Dividend Payment Date and as a result shall no longer be considered
due and payable. Each addition to the Liquidation Value in lieu of a cash
dividend to the holders of the Series A Preferred Stock as provided in the
preceding sentence shall constitute the full payment of such dividend.
<PAGE>
6
2.2 In addition to the right to receive quarterly dividends
pursuant to Section 2.1 above, each holder of a share of Series b Preferred
Stock shall have the right, at any time after the Issue Date, if the Board of
Directors of the Company shall declare a dividend or make any other distribution
(including, without limitation, in cash or other property or assets), to holders
of shares of Common Stock, to receive, out of funds legally available therefor,
a dividend or distribution in an amount equal to the amount of such dividend or
distribution receivable by a holder of the number of shares of Common Stock for
which such share of Series A Preferred Stock is convertible on the record date
for such dividend or distribution. Any such amount shall be paid to the holders
of shares of Series A Preferred Stock at the same time such dividend or
distribution is made to holders of Common Stock.
2.3 Except as hereinafter provided in this Section 2.3, unless
full cumulative dividends on the outstanding shares of Series A Preferred Stock
that shall have accrued and become payable as of any date shall have been paid,
or declared and funds shall have been set apart for payment thereof, no dividend
or other distribution (payable other than in shares of Junior Stock) shall be
paid to the holders of Junior Stock or Parity Stock. When dividends are not paid
in full upon the shares of Series A Preferred Stock and any Parity Stock, all
dividends declared upon shares of Series A Preferred Stock and all Parity Stock
shall be declared pro rata so that the amount of dividends declared per share on
Series A Preferred Stock and all such Parity Stock shall in all cases bear to
each other the same ratio that accrued cumulative dividends per share on the
shares of Series A Preferred Stock and all such Parity Stock bear to each other.
3. Conversion of Series A Preferred Stock.
--------------------------------------
3.1 Conversion at the Option of the Holder of Series A Preferred
------------------------------------------------------------
Stock.
- -----
(a) Each holder of a share of Series A Preferred Stock
shall have the right, at any time after the Issue Date, to convert such share
into fully paid and nonassessable shares of Common Stock at the Common Stock
Conversion Rate as of the date of conversion.
(b) Any holder of shares of Series A Preferred Stock
electing to convert such shares into Common Stock shall surrender the
certificate or certificates for such shares at the offices of the Company (or at
such other place in either New York City or Philadelphia as the Company may
designate by written notice to the holders of shares of Series A Preferred
Stock) during regular business hours, duly endorsed to the Company or in blank,
or accompanied by instruments of transfer to the Company or in blank, in form
reasonably satisfactory to the Company, and shall give written notice to the
Company at such offices that such holder elects to convert
<PAGE>
7
such shares of Series A Preferred Stock. As soon as practicable (but in any
event not later than five (5) Business Days) after any holder deposits
certificates for shares of Series A Preferred Stock, accompanied by the written
notice above prescribed, the Company shall issue and deliver at such office to
the holder for whose account such shares were surrendered, or to his nominee,
certificates representing the number of shares of Common Stock and the cash in
lieu of fractional shares, if any, to which such holder is entitled upon such
conversion.
(c) Conversion shall be deemed to have been made as of the
date that certificates for the shares of Series A Preferred Stock to be
converted and the written notice are received by the Company and the Person
entitled to receive the Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder of such Common Stock on such date.
The Corporation shall not be required to deliver certificates for shares of
Common Stock while the stock transfer books for such stock or for Series A
Preferred Stock are duly closed (but not for any period in excess of five days)
for any purpose, but certificates for shares of Common Stock shall be issued and
delivered as soon as practicable after the opening of such books.
3.2 Conversion at the Option of the Company.
---------------------------------------
(a) 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 Trading Days is at least 2.5 times $6.20 (with appropriate
adjustment made for any stock dividend, split-up or subdivision or any
combination or reclassification made or effected subsequent to the Issue Date),
the Company, at its option, may elect to convert, subject to the terms and
provisions of this Section 3, all or any of the shares of Series A Preferred
Stock into fully paid and nonassessable shares of Common Stock at the Common
Stock Conversion Rate as of the date of conversion. Notwithstanding the
foregoing, the Company shall not convert less than all outstanding shares of
Series A Preferred Stock pursuant to this Section 3.2(a) if shares of Series A
Preferred Stock having an aggregate liquidation value of less than $5,000,000
would remain outstanding after giving effect to any such proposed optional
conversion. If fewer than all the outstanding shares of Series A Preferred Stock
are to be converted as provided in this Section 3.2, the shares to be converted
shall be determined pro rata among the holders of record thereof.
(b) If the Company shall elect to exercise its rights under this
Section 3.2, notice of such election shall be mailed, first-class postage
prepaid, to the holders of record of the outstanding shares of Series A
Preferred Stock, not less than 15 days nor more than 45 days prior to the
conversion date, to each holder of record of the shares to be converted at such
holder's address as the same appears on the stock register of the Company;
provided, however, that no failure to mail such notice or any
- -------- -------
<PAGE>
8
defect therein shall affect the validity of the proceeding for conversion of any
shares of Series A Preferred Stock to be converted except as to the holder to
whom the Company has failed to mail said notice or except as to the holder whose
notice was defective. Each such notice shall state: (i) the conversion date (the
"Conversion Date"); (ii) the total number of shares of Series A Preferred Stock
----------------
to be converted and if less than all of the outstanding shares of Series A
Preferred Stock are be converted, the number of shares to be converted by such
holder; (iii) the Common Stock Conversion Rate; and (iv) the place or places
where certificates for such shares are to be surrendered for certificates
representing the number of shares of Common Stock and the cash in lieu of
fractional shares, if any, to which such holder is entitled upon such
conversion, which shall be the offices of the Company (or at such other place in
New York City as the Company may designate).
(c) On the Conversion Date, upon surrender in accordance with
said notice of any shares of Series A Preferred Stock (properly endorsed or
assigned for transfer, if the Board of Directors of the Company shall so require
and the notice shall so state), the Company shall deliver to the holder of such
shares of Series A Preferred Stock so surrendered a certificate or certificates
representing the number of fully paid and non-assessable shares of Common Stock
into which such shares of Series A Preferred Stock have been converted in
accordance with the provisions of this Section 3.2. If fewer than all the shares
represented by any such certificate are converted, a new certificate shall be
issued representing the unconverted shares without cost to the holder of record
thereof. For purposes of the foregoing, such conversion shall be deemed to have
been made at the close of business on the Conversion Date and the Person
entitled to receive the Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder of such Common Stock on such date.
3.3 No fractional shares or scrip representing fractions of
shares of Common Stock shall be issued upon conversion of Series A Preferred
Stock. Instead of any fractional interest in a share of Common Stock that would
otherwise be deliverable upon the conversion of a share of Series A Preferred
Stock, the Company shall, subject to Section 3.4(c), make a cash payment
(calculated to the nearest $.01) equal to such fraction multiplied by the
Closing Price of the Common Stock on the last Trading Day prior to the date of
conversion.
3.4 The Common Stock Conversion Rate shall be adjusted from time
to time as follows:
(a) If the Company shall, at any time or from time to time
while any shares of the Series A Preferred Stock are outstanding, (i) pay a
dividend on its Common Stock in shares of its capital stock, (ii) combine its
outstanding shares of Common Stock into a smaller number of shares, (iii)
subdivide its outstanding shares of Common Stock or (iv) issue by
reclassification of its shares of Common Stock
<PAGE>
9
any shares of capital stock of the Company, then the Common Stock Conversion
Rate in effect immediately before such action shall be adjusted so that the
holders of the Series A Preferred Stock, upon conversion of shares thereof
immediately following such action, shall be entitled to receive the kind and
amount of shares of capital stock of the Company which they would have owned or
been entitled to receive upon or by reason of such event if such shares of
Series A Preferred Stock had been converted immediately before the record date
or effective date for such action.
(b) If the Company or any subsidiary thereof shall, at any
time or from time to time while any of the Series A Preferred Stock is
outstanding, make a Pro Rata Repurchase, the Common Stock Conversion Rate shall
be adjusted by multiplying the Common Stock Conversion Rate in effect
immediately prior to such action by a fraction (which in no event shall be less
than one (1)), the numerator of which shall be the product of (i) the number of
shares of Common Stock outstanding immediately before such Pro Rata Repurchase
minus the number of shares of Common Stock repurchased in such Pro Rata
Repurchase and (ii) the Current Market Price of the Common Stock as of the day
immediately preceding the first public announcement by the Company of the intent
to effect such Pro Rata Repurchase, and the denominator of which shall be (i)
the product of (x) the number of shares of Common Stock outstanding immediately
before such Pro Rata Repurchase and (y) the Current Market Price of the Common
Stock as of the day immediately preceding the first public announcement by the
Company of the intent to effect such Pro Rata Repurchase minus (ii) the
aggregate purchase price of the Pro Rata Repurchase (provided that such
denominator shall never be less than $.01).
(c) All calculations under this Section 3.4 shall be made
to the nearest $.01 (with $.005 being rounded upward), one-hundredth of a share
(with .005 being rounded upward) or, in the case of a conversion rate, one ten-
thousandth (with .00005 being rounded upward). Notwithstanding any other
provision of this Section 3.4, the Company shall not be required to make any
adjustment of the Common Stock Conversion Rate unless such adjustment would
require an increase or decrease of at least 0.05% of such rate. Any lesser
adjustment shall be carried forward and shall be made at the time of and
together with the next subsequent adjustment which, together with any adjustment
or adjustments so carried forward, shall amount to an increase or decrease of at
least 0.05% in such rate. Any adjustments under this Section 3.4 shall be made
successively whenever an event requiring such an adjustment occurs.
(d) Whenever an adjustment in the Common Stock Conversion
Rate is required, the Company shall promptly cause to be mailed (but in any
event not later than five (5) days after the date of the event giving rise to
such adjustment) first-class postage prepaid, to the holders of record of the
outstanding shares of Series A Preferred Stock, notice of such adjustment and a
certificate of a firm
<PAGE>
10
of independent public accountants of recognized national standing selected by
the Board of Directors (who shall be appointed at the Company's expense and who
may be the independent public accountants regularly employed by the Company)
setting forth the adjusted Common Stock Conversion Rate in effect as of such
date determined as provided herein. Such notice and certificate shall set forth
in reasonable detail such facts as shall be necessary to show the reason for and
the manner of computing such adjustment.
(e) In the event that at any time as a result of an
adjustment made pursuant to this Section 3.4, the holder of any share of Series
A Preferred Stock thereafter surrendered for conversion shall become entitled to
receive any shares of stock of the Company other than shares of Common Stock,
the conversion rate of such other shares so receivable upon conversion of any
such share of Series A Preferred Stock shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to Common Stock contained in subparagraphs (a) through
(d) and (f) of this Section 3.4, and the provisions of this Section 3 with
respect to the Common Stock shall apply on like or similar terms to any such
other shares and the determination of the Board of Directors as to any such
adjustment shall be conclusive.
(f) No adjustment shall be made pursuant to this Section if
the effect thereof would be to reduce the Conversion Price below the par value
of the Common Stock.
3.5 The Company shall at all times reserve and keep available,
free from preemptive rights, out of its authorized but unissued stock, for the
purpose of effecting the conversion of the shares of Series A Preferred Stock,
such number of its duly authorized shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all outstanding shares of Series
A Preferred Stock into such Common Stock at any time (assuming that, at the time
of the computation of such number of shares, all such Common Stock would be held
by a single holder). The Company shall from time to time, in accordance with the
laws of the State of Delaware, use its best efforts to cause the authorized
amount of Common Stock to be increased if the aggregate of the authorized amount
of the Common Stock remaining unissued and the issued shares of such Common
Stock in its treasury (other than any shares of such Common Stock reserved for
issuance in any other connection) shall not be sufficient to permit the
conversion of the shares of Series A Preferred Stock into the Common Stock. The
Company covenants that any shares of Common Stock issued upon conversions of the
Series A Preferred Stock shall be validly issued, fully paid and nonassessable.
3.6 If any shares of Common Stock which would be issuable upon
conversion of shares of Series A Preferred Stock hereunder require registration
<PAGE>
11
with or approval of any governmental authority before such shares may be issued
upon conversion, the Company will in good faith and as expeditiously as possible
cause such shares to be duly registered or approved, as the case may be.
3.7 The Company shall pay any and all issue or other taxes that
may be payable in respect of any issue or delivery of shares of Common Stock on
conversion of shares of Series A Preferred Stock pursuant hereto. The Company
shall not, however, be required to pay any tax which is payable in respect of
any transfer involved in the issue or delivery of Common Stock in a name other
than that in which the shares of Series A Preferred Stock so converted were
registered, and no such issue or delivery shall be made unless and until the
person requesting such issue has paid to the Company the amount of such tax, or
has established, to the satisfaction of the Company, that such tax has been
paid.
3.8 For purposes of this Section 3, the number of shares of
Common Stock at any time outstanding shall not include any shares of Common
Stock then owned or held by or for the account of the Company or any subsidiary.
The Company shall not pay a dividend or make any distribution on shares of
Common Stock held in the treasury of the Company.
3.9 If any action or transaction would require adjustment of
the Common Stock Conversion Rate pursuant to more than one paragraph of this
Section 3, only one adjustment shall be made and each such adjustment shall be
the amount of adjustment that has the highest absolute value.
3.10 From and after the date a share of Series A Preferred Stock
is converted pursuant to Sections 3.1 or 3.2, dividends on such shares of Series
A Preferred Stock shall cease to accrue, and said shares shall no longer be
deemed to be outstanding and all rights of the holders thereof as a holder of
Series A Preferred Stock (except the right to receive from the Company the
Common Stock) shall cease except as otherwise provided herein and in the
Investment Agreement.
3.11 In case:
(a) of a consolidation or merger to which the Company is a
party and for which approval of any stockholders of the Company is
required; or
(b) of the voluntary or involuntary dissolution,
liquidation or winding up of the Company; or
<PAGE>
12
(c) of the sale, exchange or other conveyance (for cash,
shares of stock, securities or other consideration) of all or substantially
all the property and assets of the Company except to a wholly-owned
subsidiary; or
(d) of any Pro Rata Repurchase;
then, in each case, the Company shall cause to be mailed, first-class postage
prepaid, to the holders of record of the outstanding shares of Series A
Preferred Stock, not less than 20 days nor more than 60 days prior to the
applicable record date hereinafter specified, a notice stating (x) the date on
which a record is to be taken for the purpose of any distribution or grant of
rights or warrants triggering an adjustment to the Conversion Price pursuant to
this Section 3, or, if a record is not to be taken, the date as of which the
holders of record of Common Stock entitled to such distribution, rights or
warrants are to be determined, or (y) the date on which any reclassification,
consolidation, merger, sale, conveyance, dissolution, liquidation, winding up or
Pro Rata Repurchase is expected to become effective, if known, and the date as
of which it is expected that holders of Common Stock of record shall be entitled
to exchange their Common Stock for securities or other property deliverable upon
such reclassification, consolidation, merger, sale, conveyance, dissolution,
liquidation, winding up or Pro Rata Repurchase, if known. Failure to give the
notice specified hereunder shall have no effect on the status or effectiveness
of the action to which the required notice relates.
4. Voting. The shares of Series A Preferred Stock shall have no
------
voting rights except as required by law or as set forth below:
(a) So long as the Series A Preferred Stock is outstanding,
each share of Series A Preferred Stock shall entitle the holder thereof to vote,
in person or by proxy, at a special or annual meeting of stockholders, on all
matters entitled to be voted on by holders of Common Stock voting together as a
single class with other shares entitled to vote thereon. With respect to any
such vote, each share of Series A Preferred Stock shall entitle the holder
thereof to cast that number of votes per share as is equal to the number of
votes that such holder would be entitled to cast had such holder converted its
shares of Series A Preferred Stock into shares of Common Stock on the record
date for determining the stockholders of the Company eligible to vote on any
such matters.
(b) So long as at least 575,000 shares of Series A
Preferred Stock (with appropriate adjustment made for any stock dividend, split-
up or subdivision or any combination or reclassification made or effected
subsequent to the Issue Date) remain outstanding, the Company shall not, without
the affirmative vote at a meeting or the written consent with or without a
meeting of the holders of shares of Series A Preferred Stock representing at
least a majority of the aggregate voting power of shares of the Series A
Preferred Stock outstanding, voting as a separate class,
<PAGE>
13
authorize or issue any Senior Stock or Parity Stock or reclassify any Junior
Stock as Parity Stock or Senior Stock or reclassify any Parity Stock as Senior
Stock.
(c) The Company shall not, without the affirmative vote at
a meeting or the written consent with or without a meeting of the holders of
shares of Series A Preferred Stock representing at least a majority of the
aggregate voting power of shares of Series A Preferred Stock then outstanding,
voting as a separate class, amend, alter or repeal any of the provisions of the
Certificate of Incorporation or this Certificate of Designation, so as in any
such case to materially adversely affect the preferences, special rights, powers
or privileges of the shares of Series A Preferred Stock.
(d) In addition to the foregoing, the holders of the Series
A Preferred Stock shall have such other voting, consent and approval rights as
are specified in the Investment Agreement.
5. Liquidation Rights. For the purposes of this Section 5, an
------------------
"Extraordinary Event" shall mean: (i) the dissolution, liquidation or winding up
- --------------------
of the Company, whether voluntary or involuntary; (ii) the sale, exchange or
other conveyance (for cash, shares of stock, securities or other consideration)
of all or substantially all the property and assets of the Company other than to
a wholly-owned subsidiary; and/or (iii) any consolidation or merger to which the
Company is a party, other than a merger or consolidation in which the Company is
the surviving or continuing corporation.
5.1 Upon an Extraordinary Event, the holders of the shares of
Series A Preferred Stock shall be entitled to receive out of the assets of the
Company available for distribution to stockholders, in preference to the holders
of, and before any payment or distribution shall be made on, Junior Stock, an
amount (the "Liquidation Amount") equal to the greater of (i) the Liquidation
------------------
Value per share plus all accrued and unpaid dividends thereon (whether or not
declared) to the date fixed for the Extraordinary Event, or (ii) the amount that
it would have received if immediately prior to the Extraordinary Event, the
Series A Preferred Stock had been converted to Common Stock.
5.2 After the payment to the holders of the shares of Series A
Preferred Stock of full preferential amounts provided for in this Section 5, the
holders of Series A Preferred Stock as such shall have no right or claim to any
of the remaining assets of the Company.
5.3 In the event the assets of the Company available for
distribution to the holders of shares of Series A Preferred Stock upon an
Extraordinary Event shall be insufficient to pay in full all amounts to which
such holders are entitled
<PAGE>
14
pursuant to Section 5.1, then the holders of all shares of Series A Preferred
Stock shall share ratably in such distribution of assets in accordance with the
amount that would be payable on such distribution if the amounts to which the
holders of outstanding shares of Series A Preferred Stock are entitled were paid
in full.
6. Other Provisions.
----------------
6.1 Shares of Series A Preferred Stock issued and reacquired
will, upon compliance with the applicable requirements of Delaware law, have the
status of authorized but unissued shares of Preferred Stock of the Company
undesignated as to series and may with any and all other authorized but unissued
shares of Preferred Stock of the Company be designated or redesignated and
issued or reissued, as the case may be, as part of any series of Preferred Stock
of the Company, except that any issuance or reissuance of shares of Series A
Preferred Stock must be in compliance with this certificate of designation.
6.2 The Company shall be entitled to recognize the exclusive
right of a Person registered on its records as the holder of shares of Series A
Preferred Stock, and such record holder shall be deemed the holder of such
shares for all purposes.
6.3 Any registered holder of Series A Preferred Stock shall be
entitled to an injunction or injunctions to prevent breaches of the provisions
of this Certificate of Designations and to enforce specifically the terms and
provisions of this Certificate of Designations in any court of the United States
or any state thereof having jurisdiction, this being in addition to any other
remedy to which such holder may be entitled at law or in equity.
6.4 If any payment shall be required by the terms hereof to be
made on a day that is not a Business Day, such payment shall be made on the
immediately succeeding Business Day.
6.5 All notice periods referred to herein shall commence on the
date of the mailing of the applicable notice.
<PAGE>
15
IN WITNESS WHEREOF, VIROPHARMA INCORPORATED has caused this
certificate to be duly executed and attested as of the day and year first above
written.
VIROPHARMA INCORPORATED
By: /s/ Vincent J. Milano
---------------------------------------------
Name: Vincent J. Milano
Title: Vice President and Chief Financial Officer
Dated: May 5, 1999
[SEAL]
ATTEST: _________________
<PAGE>
EXHIBIT 4.2
AMENDMENT NO. 1 TO RIGHTS AGREEMENT
-----------------------------------
AMENDMENT, dated as of May 5, 1999, to the Rights Agreement, dated as of
September 10, 1996 (the "Rights Agreement"), between ViroPharma Incorporated, a
Delaware corporation (the "Company"), and StockTrans, Inc. a Delaware
corporation, as Rights Agent (the "Rights Agent").
WHEREAS, the Company and the Rights Agent have heretofore executed and
entered into the Rights Agreement;
WHEREAS, pursuant to Section 26 of the Rights Agreement, the Company and
the Rights Agent may from time to time supplement or amend the Rights Agreement;
and
WHEREAS, all acts and things necessary to make this Amendment a valid
agreement, enforceable according to its terms, have been done and performed, and
the execution and delivery of this Amendment by the Company and the Rights Agent
have been in all respects duly authorized by the Company and the Rights Agent.
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
set forth herein, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. The definition of "Acquiring Person" in Section 1 of the Rights
Agreement is hereby amended by adding the following additional sentence to the
end of such definition:
Notwithstanding the foregoing, neither Perseus-Soros BioPharmaceutical
Fund, LP, a Delaware limited partnership ("Perseus"), nor any
Affiliate or Associate of Perseus shall not be deemed to be "Acquiring
Persons" with respect to their beneficial ownership, pursuant to the
terms of the Investment Agreement, dated May __, 1999, between the
Company and Perseus, of (i) any shares of Series A Convertible
Participating Preferred Stock, par value $.001 per share ("Perseus
Preferred Stock"), (ii) any warrants to purchase Common Shares
("Perseus Common Warrants"), (iii) any Common Shares issuable upon the
exercise of Perseus Common Warrants, and (iv) any Common Shares
issuable upon the conversion of shares of Perseus Preferred Stock, or
the Perseus Warrants, as the case may be (the "Exempted
Transactions").
2. Section 11(a)(ii)(B) of the Rights Agreement is amended and restated
in its entirety to read as follows:
(B) any Person (other than the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or of any Subsidiary
of the Company, any Person or entity organized, appointed or
established by the
<PAGE>
Company for or pursuant to the terms of any such plan or Perseus,
alone or together with its Affiliates or Associates), alone or
together with its Affiliates and Associates, shall, at any time after
the Rights Dividend Declaration Date, become the Beneficial Owner of
20% or more of the Common Shares then outstanding, unless the event
causing the 20% threshold to be crossed is a Section 13 Event, or is
an acquisition of Common Shares pursuant to a tender offer or an
exchange offer for all outstanding Common Shares at a price and on
terms that provide fair value to all stockholders, determined by at
least a majority of the members of the Board of Directors, after
taking into consideration all factors that such members of the Board
of Directors deem relevant, including, without limitation, the long-
term prospects and value of the Company and the prices and terms that
such members of the Board of Directors believe, in good faith, could
reasonably be achieved if the Company or its assets were sold on an
orderly basis designed to realize maximum value,
3. Section 11(a)(ii)(C) is amended to become a new Section 11(a)(ii)(D).
4. The following Section 11(a)(ii)(C) is hereby added:
(C) Perseus, alone or together with its Affiliates and
Associates, shall, at any time after the Rights Dividend Declaration
Date, become the Beneficial Owner of 2% or more of the Common Shares
then outstanding (other than Common Shares beneficially owned as a
result of the Exempted Transactions), unless the event causing the 2%
threshold to be crossed is a Section 13 Event, or is an acquisition of
Common Shares pursuant to a tender offer or an exchange offer for all
outstanding Common Shares at a price and on terms that provide fair
value to all stockholders, determined by at least a majority of the
members of the Board of Directors, after taking into consideration all
factors that such members of the Board of Directors deem relevant,
including, without limitation, the long-term prospects and value of
the Company and the prices and terms that such members of the Board of
Directors believe, in good faith, could reasonably be achieved if the
Company or its assets were sold on an orderly basis designed to
realize maximum value, or
5. Unless otherwise defined herein, the terms used herein shall have the
meanings ascribed to them in the Rights Agreement.
6. This Amendment to the Rights Agreement may be executed in any number
of counterparts. It shall not be necessary that the signature of or on behalf of
each party appears on each counterpart, but it shall be sufficient that the
signature of or on behalf of each party appears on one or more counterparts. All
counterparts shall collectively constitute a single agreement.
7. Except as expressly set forth herein, this Amendment to the Rights
Agreement shall not by implication or otherwise alter, modify, amend or in any
way effect any of the terms,
2
<PAGE>
conditions, obligations, covenants or agreements contained in the Rights
Agreement, all of which are ratified and affirmed in all respects and shall
continue in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first above written.
VIROPHARMA INCORPORATED
Attest:
________________ By:_______________________________
Vincent J. Milano
Title:Vice President and Chief Financial Officer
STOCKTRANS, INC.
Attest:
_______________ By:_______________________________
Title:
<PAGE>
[EXECUTION COPY]
================================================================================
INVESTMENT AGREEMENT
AMONG
VIROPHARMA INCORPORATED
AND
PERSEUS-SOROS BIOPHARMACEUTICAL FUND, LP
__________________________________
Dated May 5, 1999
----------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C>
1. DEFINITIONS....................................................................................... 1
2. CLOSING........................................................................................... 6
2.1 Time and Place of the Closing................................................................ 6
2.2 Transactions at the Closing.................................................................. 6
2.3 Perseus-Soros Management, LLC Fee............................................................ 6
2.4 Rights Plan.................................................................................. 6
2.5 Opinion of Counsel........................................................................... 6
2.6 Secretary's Certificate...................................................................... 6
2.7 Reservation of Stock......................................................................... 7
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY..................................................... 7
3.1 Corporate Existence and Power............................................................... 7
3.2 Power and Authority......................................................................... 7
3.3 Subsidiaries................................................................................ 8
3.4 Affiliate Transactions...................................................................... 8
3.5 No Contravention, Conflict, Breach, Etc..................................................... 8
3.6 Consents.................................................................................... 9
3.7 Capitalization.............................................................................. 9
3.8 SEC Documents............................................................................... 10
3.9 Financial Statements........................................................................ 10
3.10 No Existing Violation, Default, Etc......................................................... 11
3.11 Licenses and Permits........................................................................ 11
3.12 Intellectual Property....................................................................... 11
3.13 Environmental Matters....................................................................... 13
3.14 Taxes....................................................................................... 13
3.15 Litigation.................................................................................. 14
3.16 Labor Relations............................................................................. 14
3.17 Employee Benefits........................................................................... 14
3.18 Contracts................................................................................... 16
3.19 No Material Adverse Change.................................................................. 16
3.20 Insurance................................................................................... 17
3.21 Rights Plan................................................................................. 17
3.22 Broker's Fees............................................................................... 17
3.23 Investment Company.......................................................................... 17
3.24 Exemption from Registration; Restrictions on Offer and Sale of Same or Similar Securities... 18
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER................................................... 18
4.1 Existence and Power.......................................................................... 18
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
4.2 Power and Authority.......................................................................... 18
4.3 No Contravention, Conflict, Breach, Etc...................................................... 18
4.4 Consents..................................................................................... 19
4.5 Acquisition for Own Account.................................................................. 19
4.6 Hart-Scott-Rodino............................................................................ 19
5. CERTAIN COVENANTS AND AGREEMENTS.................................................................. 20
5.1 Publicity................................................................................... 20
5.2 Use of Proceeds............................................................................. 20
5.3 Board of Directors.......................................................................... 20
5.4 Purchaser Rights............................................................................ 21
5.5 SEC Filings................................................................................. 22
5.6 Restrictions on Transfer; Legends........................................................... 22
5.7 Preemptive Rights........................................................................... 23
5.8 Tax......................................................................................... 23
5.9 Board of Directors.......................................................................... 24
5.10 Indemnification Agreement................................................................... 24
6. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS............................................. 24
7. INDEMNIFICATION................................................................................... 24
8. REGISTRATION RIGHTS............................................................................... 25
8.1 Securities Subject to this Agreement......................................................... 25
8.2 Demand Registration.......................................................................... 25
8.3 Holdback Agreements.......................................................................... 29
8.4 Registration Procedures...................................................................... 29
8.5 Registration Expenses........................................................................ 33
8.6 Indemnification; Contribution................................................................ 34
8.7 Rule 144..................................................................................... 36
9. MISCELLANEOUS..................................................................................... 37
9.1 Performance; Waiver......................................................................... 37
9.2 Binding Effect; Successors and Assigns...................................................... 37
9.3 Notices..................................................................................... 37
9.4 Severability................................................................................ 39
9.5 Headings; Interpretation.................................................................... 39
9.6 Entire Agreement............................................................................ 40
9.7 No Third Party Rights....................................................................... 40
9.8 Remedies for Breach......................................................................... 40
9.9 Counterparts................................................................................ 40
9.10 Governing Law............................................................................... 40
</TABLE>
ii
<PAGE>
INVESTMENT AGREEMENT
INVESTMENT AGREEMENT ("Agreement"), dated as of May 5, 1999, by and
---------
among ViroPharma Incorporated, a Delaware corporation (the "Company"), and
-------
Perseus-Soros BioPharmaceutical Fund, LP, a Delaware limited partnership (the
"Purchaser").
- ----------
WHEREAS, the Company desires to sell to the Purchaser, and the
Purchaser desires to purchase from the Company, (i) shares (the "Shares") of the
------
Company's Series A Convertible Participating Preferred Stock, par value $.001
per share, having the terms and conditions set forth in a Certificate of
Designation substantially in the form attached hereto as Exhibit A (the
"Preferred Stock"), and (ii) warrants to purchase shares of Common Stock (the
- ----------------
"Warrants") having the terms and conditions set forth in the form of Warrant
- ---------
certificate attached hereto as Exhibit B, in each case, upon the terms and
subject to the conditions set forth herein and therein. The Warrants, together
with the shares of Preferred Stock, are referred to herein as the "Securities."
----------
NOW, THEREFORE, in consideration of the premises and the respective
representations, warranties, covenants, agreements and conditions contained
herein, the Company and the Purchaser agree as follows:
1. DEFINITIONS.
The terms defined in this Section 1 shall have the following meanings
for all purposes of this Agreement:
"1998 Form 10-K" has the meaning set forth in Section 3.1(a).
--------------
"Act" means the Securities Act of 1933, as amended, or any superseding
---
Federal statute, and the rules and regulations promulgated thereunder, all as
the same shall be in effect at the time. References to a particular section of
the Securities Act of 1933, as amended, shall include a reference to the
comparable section, if any, of any such superseding Federal statute.
An "Affiliate" of, or a person "affiliated" with, a specified Person,
--------- ----------
means a Person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, the Person
specified. The term "control" (including the terms "controlling," "controlled
------- ----------- ----------
by" and "under common control with") means the possession, direct or indirect,
- -- -------------------------
of the power to direct or cause the direction of the management, policies or
investment decisions of a Person, whether through the ownership of voting
securities, by contract, or otherwise.
<PAGE>
2
"Annual Reports" means the Company's Annual Reports on Form 10-K for
--------------
the years ended December 31, 1998 and 1997, each as filed with the SEC
(including, in each case, all amendments thereto filed with the SEC prior to the
date of this Agreement, all exhibits and schedules thereto and documents
incorporated by reference therein, but excluding any amendments thereto made
subsequent to the date hereof).
"Benefit Plans" has the meaning set forth in Section 3.17.
-------------
"Board of Directors" means the Board of Directors of the Company, as
------------------
constituted from time to time.
"Business Day" means any day that is not a Saturday, a Sunday or a day
------------
on which banking institutions are not required to be open in New York City.
"Capital Stock" means, with respect to any Person, any and all shares,
-------------
interests, participations, rights in, or other equivalents (however designated
and whether voting or non-voting) of, such Person's capital stock.
"Certificate of Designation" means the Certificate of the Powers
--------------------------
Designations, Preferences and Rights of the Preferred Stock substantially in the
form of Exhibit A hereto.
"Certificate of Incorporation" means the Second Amended and Restated
----------------------------
Certificate of Incorporation of the Company, as amended through the date hereof.
"Closing" has the meaning set forth in Section 2.1.
-------
"Closing Date" has the meaning set forth in Section 2.1.
------------
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Common Stock" means a share of the Company's Common Stock, par value
------------
$.002 per share.
"Company" has the meaning set forth in the preamble to this Agreement.
-------
"Encumbrance" means any mortgage, pledge, lien, security interest,
-----------
restriction upon voting or transfer, claim or other encumbrance of any kind.
<PAGE>
3
"Environmental Laws" means all Federal, state, local and foreign laws,
------------------
principles of common law, regulations, codes and ordinances, as well as orders,
decrees, judgments or injunctions issued, promulgated, approved or entered
thereunder relating to pollution, protection of the environment, or health and
safety, as in effect at the time.
"ERISA" has the meaning set forth in Section 3.17.
-----
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
or any superseding Federal statute, and the rules and regulations promulgated
thereunder, all as the same shall be in effect at the time. Reference to a
particular section of the Securities Exchange Act of 1934, as amended, shall
include a reference to the comparable section, if any, of such superseding
Federal statute.
"FDA" means the United States Food and Drug Administration.
---
"General Partner" means Perseus-Soros Partners, LLC, a Delaware
---------------
limited liability company, the sole general partner of the Purchaser.
"Governmental Authority" means the government of any nation or state,
----------------------
or other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.
"Intellectual Property" has the meaning set forth in Section 3.12.
---------------------
"Knowledge of the Company" means the actual knowledge of the executive
------------------------
officers of the Company without investigation.
"Law" means any law, treaty, rule or regulation of a Governmental
---
Authority or judgment, order, writ, injunction or determination of an arbitrator
or a court or other Governmental Authority as in effect on the date hereof.
"License Agreement" means the agreement by and between Sanofi, a
-----------------
corporation organized and existing under the laws of France ("Sanofi"), and the
------
Company, dated as of December 22, 1995, and all amendments thereto.
<PAGE>
4
"Licenses" means any certificates, permits, licenses, franchises,
--------
consents, approvals, orders, authorizations and clearances from appropriate
Governmental Authorities.
"Losses" has the meaning set forth in Section 7.
------
"Material Adverse Effect" means a material adverse effect on the
-----------------------
assets, results of operations, business, prospects or condition (financial or
otherwise) of the Company.
"Options" has the meaning set forth in Section 3.7.
-------
"Person" means any individual, firm, corporation, partnership, limited
------
liability company or partnership, trust, incorporated or unincorporated
association, joint venture, joint stock company, government (or an agency or
political subdivision thereof) or other entity of any kind, and shall include
any successor (by merger or otherwise) of such entity.
"Preferred Stock" has the meaning set forth in the first recital of
---------------
this Agreement.
"Purchaser" has the meaning set forth in the preamble to this
---------
Agreement.
"Purchaser Director" means the person serving as a member of the Board
------------------
of Directors who has been designated by the Company in accordance with Section
5.3.
"Quarterly Reports" means the Company's Quarterly Reports on Form 10-Q
-----------------
for the quarters ended September 30, 1998, June 30, 1998 and March 31, 1998,
each as filed with the SEC.
"Registrable Securities" means the shares of Common Stock issued or
----------------------
issuable upon conversion or exercise of the Securities.
"Related Directors" means those members of the Board of Directors who
-----------------
are either employees of the Company or are associated with investors in the
Company.
"Representatives" means the officers and directors of the General
---------------
Partner and the employees, counsel, accountants and other authorized
representatives of the Purchaser, the General Partner or any Affiliates of
either person.
<PAGE>
5
"Research Agreement" means the agreement by and between Boehringer
------------------
Ingelheim Pharmaceuticals, Inc., a Delaware corporation ("BI"), and the Company,
--
dated as of July 23, 1996, and all amendments thereto.
"Restricted Securities" means the Securities or shares of capital
---------------------
stock issued or issuable upon conversion or exercise of the Securities.
"Rights" means any rights, title, interest or benefit of whatever kind
------
and nature.
"Rights Plan" means the Stockholders' Rights Plan, dated as of
-----------
September 10, 1998, by and among the Company and StockTrans, Inc., as Rights
Agent, as amended on May 5, 1999.
"SEC" means the Securities and Exchange Commission.
---
"SEC Documents" means the Annual Reports, the Quarterly Reports and
-------------
all other documents filed by the Company with the SEC thereafter prior to the
date hereof pursuant to Sections 13 or 15(d) of the Exchange Act (including all
exhibits and schedules thereto and documents incorporated by reference therein),
but shall not include any portion of any document which is not deemed to be
filed under applicable SEC rules and regulations.
"Securities" has the meaning set forth in the first recital of this
----------
Agreement.
"Subsidiary" means, with respect to any Person, any corporation,
----------
limited or general partnership, joint venture, association, limited liability
company or partnership, joint stock company, trust, unincorporated organization,
or other entity analogous to any of the foregoing of which 50% or more of the
equity ownership is, at the time, owned, directly or indirectly by such Person.
"Tax" or "Taxes" has the meaning set forth in Section 3.14.
--- -----
"Transaction Documents" means (i) this Agreement (including the
---------------------
exhibits and schedules attached hereto) and (ii) the Warrants.
<PAGE>
6
"Transfer" means any sale, assignment, transfer or disposition by gift
--------
or otherwise, including without limitation, any distribution in liquidation or
otherwise by a corporation or partnership or other Person.
"Warrants" has the meaning set forth in the first recital of this
--------
Agreement.
2. CLOSING.
2.1 Time and Place of the Closing. Subject to the terms and
-----------------------------
conditions of this Agreement, the closing of the sale and purchase of the
Securities contemplated hereby (the "Closing") shall take place at the offices
-------
of Paul, Weiss, Rifkind, Wharton & Garrison, 1285 Avenue of the Americas, New
York, New York 10019-6064, at 10:00 A.M., New York time, on the date hereof.
The "Closing Date" shall be the date the Closing occurs.
------------
2.2 Transactions at the Closing. At the Closing, subject to the
---------------------------
terms and conditions of this Agreement, the Company shall issue and sell to the
Purchaser, and the Purchaser shall purchase, Preferred Stock and Warrants for an
aggregate purchase price of $14,260,000 (the "Purchase Price") by wire transfer
--------------
of immediately available funds to an account or accounts previously designated
by the Company. At the Closing, the Company shall deliver to the Purchaser
certificates representing such number of shares of Preferred Stock and Warrant
certificates representing the number of Warrants as are set forth opposite the
Purchaser's name on Schedule 2.2, each registered in the name of the Purchaser
or its nominees, against payment by the Purchaser of the Purchase Price payable
by the Purchaser in respect thereof.
2.3 Perseus-Soros Management, LLC Fee. At the Closing, subject to
---------------------------------
the terms and conditions of this Agreement, the Company shall pay to Perseus-
Soros Management, LLC, a Delaware limited liability company ("Perseus-Soros
-------------
Management"), a fee in an amount equal to $499,100, by wire transfer of
- ----------
immediately available funds to an account or accounts designated by Perseus-
Soros Management.
2.4 Rights Plan. Prior to, or concurrently with, the Closing, the
-----------
Company will adopt the amendment to the Rights Plan substantially in the form
attached hereto as Exhibit C.
<PAGE>
7
2.5 Opinion of Counsel. At the Closing, the Purchaser shall
------------------
receive the favorable opinion of Morgan, Lewis & Bockius LLP, counsel to the
Company, dated the Closing Date, substantially in the form of Annex A.
2.6 Secretary's Certificate. At the Closing, the Purchaser shall
-----------------------
receive a certificate, dated the Closing Date and signed by the secretary or an
assistant secretary of the Company on behalf of the Company, certifying the
correctness of attached copies of the Certificate of Incorporation (including
amendments thereto), the By-laws (including amendments thereto), and resolutions
of the Board of Directors approving the sale of the Securities to the Purchaser
and the other transactions contemplated hereby.
2.7 Reservation of Stock. At the Closing, 3,195,000 shares of
--------------------
Common Stock shall have been duly authorized and reserved for issuance upon
conversion or exercise of the Securities, as the case may be.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to the Purchaser that the
following are true and correct as of the Closing Date:
3.1 Corporate Existence and Power.
-----------------------------
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. The Company has
the corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Company's annual report on Form 10-K
for the year ended December 31, 1998 (the "1998 Form 10-K"). The Company is
--------------
duly qualified to transact business as a foreign corporation and is in good
standing (if applicable) in each jurisdiction in which the conduct of its
business or its ownership, leasing or operation of property requires such
qualification, other than any failure to be so qualified or in good standing as
would not singly or in the aggregate with all such other failures reasonably be
expected to have a Material Adverse Effect.
(b) True, correct and complete copies of the Certificate of
Incorporation and the By-Laws as in effect on the date hereof have been provided
by the Company to the Purchaser.
<PAGE>
8
3.2 Power and Authority. The Company has the full corporate power
-------------------
and authority to execute and deliver this Agreement and to perform its
obligations under this Agreement. The execution, delivery and performance by
the Company of this Agreement and each of the Transaction Documents and the
consummation by the Company of the transactions contemplated hereby have been
duly authorized and approved by the Board of Directors and no further corporate
action on the part of the Company (other than the filing of the Certificate of
Designation under the Delaware General Corporation Law) is necessary to
authorize the execution, delivery and performance by the Company of this
Agreement or the consummation by the Company of the transactions contemplated
hereby. The Board of Directors has duly adopted the Certificate of Designation.
This Agreement has been duly executed and delivered by the Company and is a
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms.
3.3 Subsidiaries. The Company has no Subsidiaries and does not
------------
otherwise own or control, directly or indirectly, any other person, corporation,
association, or business entity. Except as described in the 1998 Form 10-K, the
Company is not a participant in any joint venture, partnership, or similar
arrangement.
3.4 Affiliate Transactions. Except as disclosed in the Company's
----------------------
Proxy Statement as filed with the SEC on April 6, 1999, the Company is not a
party to any transaction or series of transactions or any contract with any
officer, director, employee or Affiliate of the Company, in each case, the value
of which is in excess of $60,000.
3.5 No Contravention, Conflict, Breach, Etc. The execution,
----------------------------------------
delivery and performance of this Agreement and each Transaction Document to
which it is a party by the Company and the consummation of the transactions
contemplated hereby and thereby will not conflict with, contravene or result in
a breach or violation of any of the terms and provisions of, or constitute a
default under, or result in the creation or imposition of any Encumbrance upon
any assets or properties of the Company or cause the Company to be required to
redeem, repurchase or offer to repurchase any of their respective indebtedness
under (i) the Certificate of Incorporation, the By-laws or other organizational
document of the Company, (ii) any material Law of any Governmental Authority
having jurisdiction over the Company or any of its assets, properties or
operations or (iii) any indenture, mortgage, loan agreement, note or other
agreement or instrument for borrowed money, any guarantee of any agreement or
instrument for borrowed money or any material lease, permit, license or other
agreement or instrument to which the Company is a party or by which the Company
is bound or to which any of the assets, properties or operations of the
<PAGE>
9
Company is subject. The consummation of the transactions contemplated by the
Transaction Documents including, without limitation, the (i) acquisition by the
Purchaser of the Securities pursuant hereto, (ii) conversion of the Preferred
Stock into Common Stock as provided for in the Certificate of Designation and/or
(iii) exercise of the Warrants, will not:
(a) result in any anti-dilution adjustment or change in
conversion or exercise ratio or conversion or exercise price or similar
adjustment with respect to any outstanding equity or debt securities of the
Company; or
(b) in the Company's belief, result in a change in control of the
Company under the License Agreement or otherwise give Sanofi the right to
discontinue or terminate the License Agreement.
3.6 Consents. No consent, approval, authorization, order,
--------
registration, filing or qualification of or with any (i) Governmental Authority,
(ii) stock exchange on which the securities of the Company are traded or (iii)
other Person (whether acting in an individual, fiduciary or other capacity) is
required to be made or obtained by the Company for the execution, delivery and
performance by the Company of this Agreement and each Transaction Document to
which it is a party and the consummation of the transactions contemplated hereby
and thereby, except such approvals as may be required under the Act and state
securities laws in connection with the performance by the Company of its
obligations under Section 8 hereof and except consents which are not material to
the business or operations of the Company. Shareholder approval is not required
to be obtained by the Company for the execution, delivery and performance by the
Company of this Agreement and each Transaction Document to which it is a party
and the consummation of the transactions contemplated hereby and thereby.
3.7 Capitalization. Schedule 3.7 sets forth, as of April 30, 1999,
--------------
(i) the authorized Capital Stock of the Company, (ii) the issued and outstanding
Capital Stock of the Company and (iii) in the aggregate, all outstanding
options, warrants, conversion privileges or other rights to purchase or
otherwise acquire any authorized but unissued or treasury shares of Capital
Stock (collectively, "Options") of the Company. No shares of the Company's
-------
Preferred Stock, par value $.001 per share (the "Company Preferred Stock"), are
-----------------------
issued and outstanding as of the date hereof. Since April 30, 1999, the Company
has not issued any additional shares of Capital Stock (other than Common Stock
issued upon exercise of outstanding Options). Schedule 3.7 sets forth the
number of shares of Common Stock reserved for (i) issuance upon exercise of all
outstanding Options, (ii) issuance upon conversion of the Preferred
<PAGE>
10
Stock and (iii) issuance upon exercise of the Warrants. Except as set forth in
Schedule 3.7, no other shares of the Company's Capital Stock are reserved for
future issuance. The shares of Preferred Stock and the shares of Common Stock
issuable upon conversion of the shares of Preferred Stock, and the Warrants and
the shares of Common Stock issuable upon exercise of the Warrants, when issued
and paid for in compliance with the provisions of this Agreement, the
Certificate of Designation, the Warrants and the Certificate of Incorporation,
will be duly authorized, validly issued, fully paid and nonassessable, will not
have been issued in violation of the preemptive or similar rights of any Person.
The issued and outstanding shares of Capital Stock of the Company are duly
authorized, validly issued, fully paid and nonassessable, and were issued in
compliance with the registration and qualification requirements of all
applicable federal securities laws or an exemption therefrom.
3.8 SEC Documents.
-------------
(a) The Company has made all filings required to be made
with the SEC since November 19, 1996.
(b) As of its filing date, each SEC Document filed pursuant
to the Exchange Act (i) complied in all material respects with the applicable
requirements of the Exchange Act and (ii) did not contain any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements made therein, in the light of the circumstances under which they
were made, not misleading.
(c) Each final registration statement filed with the SEC, as
amended or supplemented prior to the Closing Date, if applicable, pursuant to
the Act, as of the date such statement or amendment became or will become
effective (i) complied or will comply in all material respects with the
applicable requirements of the Act and (ii) did not or will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
(in the case of any prospectus, in light of the circumstances under which they
were made).
3.9 Financial Statements. The audited financial statements and
--------------------
notes included in the SEC Documents comply in all material respects with the
requirements of the Exchange Act and the rules and regulations of the SEC
thereunder, were prepared in accordance with generally accepted accounting
principles consistently applied throughout the period involved except as noted
therein, and fairly present in all material respects the financial condition,
results of operations, cash flows and changes
<PAGE>
11
in stockholders' equity of the Company at the dates and for the periods
presented. Since December 31, 1998, the Company has not incurred any material
liabilities other than in the ordinary course of business of the Company, 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.
3.10 No Existing Violation, Default, Etc. The Company is not in
-----------------------------------
violation (i) of any provision of its Certificate of Incorporation, By-laws or
other organizational documents or (ii) of any applicable Law or regulation,
which violation has or would reasonably be expected to have a Material Adverse
Effect. No breach, event of default or event that, but for the giving of notice
or the lapse of time or both, would constitute an event of default exists under
any indenture, mortgage, loan agreement, note or other agreement or instrument
for borrowed money, any guarantee of any agreement or instrument for borrowed
money or any lease, permit, license or other agreement to which the Company is a
party or by which the Company is bound or to which any of the properties, assets
or operations of the Company is subject, which breach, event of default, or
event that, but for the giving of notice or the lapse of time or both, would
constitute an event of default, has or would reasonably be expected to have a
Material Adverse Effect.
3.11 Licenses and Permits. The Company has such Licenses as are
--------------------
necessary to own, lease or operate its properties and to conduct its businesses
in the manner described in the SEC Documents and as currently owned or leased
and conducted and all such Licenses are valid and in full force and effect,
except Licenses the failure of which to have or to be in full force and effect
individually or in the aggregate has not had, and would not reasonably be
expected to have, a Material Adverse Effect. The Company has not received any
written notice that any violations are being or have been alleged in respect of
any such License and no proceeding is pending or, to the Knowledge of the
Company, threatened, to suspend, revoke or limit any such License the effect of
which would reasonably be expected to have a Material Adverse Effect. The
Company is in compliance with its respective obligations under such Licenses,
with such exceptions as individually or in the aggregate have not had, and would
not reasonably be expected to have, a Material Adverse Effect, and no event has
occurred that allows, or after notice or lapse of time would allow, revocation,
suspension, limitation or termination of such Licenses, except such events as
have not had, or would not reasonably be expected to have, a Material Adverse
Effect.
3.12 Intellectual Property. There are no patents, patent
---------------------
applications, and other patent rights (including any divisions, continuations,
continuations-in-part, substitutions, or reissues thereof, whether or not
patents are issued on any
<PAGE>
12
such applications and whether or not any such applications are modified or
resubmitted) owned or licensed by the Company ("Intellectual Property") other
---------------------
than as disclosed in Schedule 3.12. Except as disclosed in Schedule 3.12: (i)
the Company owns or possesses sufficient legal rights to all Intellectual
Property and Related Intellectual Property (as defined below in this Section
3.12) necessary for its business as presently conducted without any conflict or
infringement of rights of others; (ii) other than the License Agreement, those
agreements listed on Schedule 3.18 and those contracts, agreements, and
instruments required to be filed as an exhibit to the 1998 Form 10-K, there are
no material outstanding options, licenses, or agreements of any kind relating to
the Intellectual Property nor is the Company bound by or a party to any material
options, licenses, or agreements of any kind with respect to the intellectual
property of any other person or entity; (iii) to the Knowledge of the Company,
the Company has not infringed upon or otherwise violated the intellectual
property rights of any third party; (iv) other than as previously disclosed to
the Purchaser in writing, the Company has not received any claim, charge,
demand, notice or other communication 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; (v) other than as previously disclosed to
the Purchaser in writing, the Company is unaware of any facts that would form a
reasonable basis for an action or claim by others alleging infringement by the
Company of Intellectual Property of others; and (vi) all of the Company's
Intellectual Property is owned by the Company, free and clear of all liens and
encumbrances and held in the Company's name. None of the execution or delivery
of this Agreement or any Transaction Documents, or the carrying on of the
Company's business by the employees of the Company, 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 related to the Company's
Intellectual Property. The Company has taken all action reasonably necessary and
desirable to maintain and protect each item of Intellectual Property owned by
the Company. Each employee, officer and director of the Company has executed an
agreement regarding inventions and confidentiality substantially in the form or
forms delivered to the Purchaser. The Company is unaware of uncited prior art
that is more pertinent than the art already of record in the U.S. Patent and
Trademark Office in connection with the patents and patent applications of the
Company's Intellectual Property.
As used in this Agreement, the term "Related 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, (i)
trademarks, service marks, fictitious
<PAGE>
13
or assumed names, trade dress, trade names, brand names, Internet domain names,
designs, logos, or corporate names, whether registered or unregistered, and all
registrations and applications for registration thereof; (ii) copyrights,
including all renewals and extensions thereof, copyright registrations and
applications for registration thereof, and non-registered copyrights; (iii)
trade secrets, concepts, ideas, designs, research, processes, procedures,
techniques, methods, know-how, data, mask works, discoveries, inventions,
modifications, extensions, improvements, formulae and other proprietary rights
(whether or not patentable or subject to copyright, mask work, or trade secret
protection); and (iv) computer software programs, including, without limitation,
all source code, object code, and documentation related thereto.
3.13 Environmental Matters. The Company and its operations and
---------------------
properties are and have been in compliance in all material respects with all
applicable Environmental Laws, and to the Knowledge of the Company, no material
expenditures are or will be required in order to comply with any applicable
Environmental Laws. There is no civil, criminal or administrative judgment,
action, suit, demand, claim, hearing, notice of violation, investigation,
proceeding, notice or demand letter pending or, to the Knowledge of the Company,
threatened against the Company pursuant to Environmental Laws which could
reasonably be expected to result in a material fine, penalty or other
obligation, cost or expense. There are no past or present events, conditions,
circumstances, activities, practices, incidents, agreements, actions or plans
which may prevent compliance by the Company with, or which have given rise to,
or will give rise to, material liability to the Company under Environmental
Laws.
3.14 Taxes. The Company has filed or caused to be filed, or has
-----
properly filed extensions for, all material Tax returns that are required to be
filed and has paid or caused to be paid all material Taxes as shown on said
returns and on all material assessments received by it to the extent that such
Taxes have become due, except Taxes the validity or amount of which is being
contested in good faith by appropriate proceedings and with respect to which
adequate reserves, in accordance with generally accepted accounting principles,
have been set aside. These returns are true and correct in all material
respects. The Company has paid or caused to be paid, or have established
reserves that the Company reasonably believes to be adequate in all material
respects, for all Tax liabilities applicable to the Company for all fiscal years
that have not been examined and reported on by the taxing authorities (or closed
by applicable statutes). Schedule 3.14 sets forth the tax year through which
United States Federal income tax returns of the Company have been examined and
closed. For purposes of this Section 3.14, "Tax" or "Taxes" means any federal,
--- -----
state, county, local, foreign and other taxes (including, without limitation,
income, profits, premium,
<PAGE>
14
estimated, excise, sales, use, occupancy, gross receipts, franchise, ad valorem,
severance, capital levy, production, transfer, withholding, employment,
unemployment compensation, payroll and property taxes, import duties and other
governmental charges and assessments), whether or not measured in whole or in
part by net income, and including deficiencies, interest, additions to tax or
interest, and penalties with respect thereto, and including expenses associated
with contesting any proposed adjustments related to any of the foregoing.
3.15 Litigation. Other than as disclosed in Schedule 3.15, there
----------
are no actions, suits, proceedings, or investigations pending or, to the
Knowledge of the Company, threatened against the Company or its properties
before any court or governmental agency (nor, other than as previously disclosed
to the Purchaser in writing, to the Knowledge of the Company, 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, negotiations by the Company with potential
backers of, or investors in, the Company or in connection with any investment
agreement, rights agreement, stock purchase agreement, shareholder(s) agreement
or similar agreement, arrangement or understanding entered into by the Company.
The Company is not a party to, or to the Knowledge of the Company, 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 Labor Relations. No (i) grievance or arbitration proceeding
---------------
arising out of or under collective bargaining agreements is pending or, to the
Knowledge of the Company, threatened against the Company and (ii) strike, labor
dispute, slowdown or stoppage has occurred within the past 36 months or is
pending or, to the Knowledge of the Company, threatened against the Company.
The Company is not a party to any collective bargaining agreement or contract
and to the Knowledge of the Company, no union organizing activities are taking
place that affect the employees of the Company.
3.17 Employee Benefits.
-----------------
(a) Except for the plans described in the SEC Documents
filed with the SEC prior to the date of this Agreement and those listed in
Schedule 3.17 (the "Benefit Plans"), there are no employee benefit plans or
-------------
arrangements of any type (including, without limitation, plans described in
Section 3(3)
<PAGE>
15
of the Employee Retirement Income Security Act of 1974, as amended and the
regulations thereunder ("ERISA") under which the Company has or in the future
-----
could have directly, or indirectly through a Commonly Controlled Entity (within
the meaning of Sections 414(b), (c), (m) and (o) of the Code), any material
liability with respect to any current or former employee of the Company or any
Commonly Controlled Entity. No such Benefit Plan is a "multiemployer plan"
(within the meaning of ERISA Section 4001(a)(3)) or subject to Title IV of ERISA
and, during the previous six years, the Company has not contributed to, or had
any obligation to contribute to, any such multiemployer plan or any plan subject
to Title IV of ERISA.
(b) With respect to each Benefit Plan: (i) such Benefit
Plan has been maintained and administered at all times in material compliance
with its terms and applicable law and regulation; (ii) no event has occurred and
to the Knowledge of the Company, there exists no circumstance under which the
Company could directly, or indirectly through a Commonly Controlled Entity,
incur any material liability under ERISA, the Code or otherwise (other than
routine claims for benefits); (iii) there are no actions, suits or claims (other
than routine claims for benefits) pending or, to the Knowledge of the Company,
threatened, with respect to any Benefit Plan or against the assets of any
Benefit Plan with respect to which suits management of the Company reasonably
believes the Company could incur any material liability; (iv) all contributions
and premiums due and owing to any Benefit Plan have been made or paid on a
timely basis and no "accumulated funding deficiency", as defined in Code Section
412, has been incurred, whether or not waived; and (v) if such Benefit Plan is
intended to be qualified under Section 401(a) of the Code, such Benefit Plan has
been determined to be so qualified and each trust created under such Benefit
Plan has been determined to be exempt from tax under Section 501(a) of the Code
and to the Knowledge of the Company, no event has occurred since the date of
such determinations, including effective changes in laws or regulations or
modifications to the Benefit Plans, that would adversely affect such
qualification or tax exempt status.
(c) The Company has no Postretirement Benefit Obligation (as
defined in Statement of Financial Accounting Standards No. 106) in respect of
post-retirement health and medical benefits for current and former employees of
the Company. No condition exists that would prevent the Company from amending or
terminating any plan providing health or medical benefits in respect of current
or former employees of the Company.
(d) No employee or former employee of the Company will
become entitled to any bonus, retirement, severance, job security or similar
benefit or enhanced such benefit (including acceleration of vesting or exercise
of an incentive
<PAGE>
16
award, stock option or restricted security) as a result of the transactions
contemplated hereby.
(e) All persons classified by the Company as independent
contractors satisfy the requirements of applicable law to be so classified and
the Company has no obligation to provide benefits to any such person under any
Benefit Plan.
3.18 Contracts. Except as disclosed in Schedule 3.18, all
---------
contracts, agreements, and instruments required to be filed as an exhibit to the
1998 Form 10-K are legal, valid, binding, and in full force and effect, and, to
the Knowledge of the Company, are enforceable by the Company in accordance with
their respective terms, subject to (x) laws of general application relating to
bankruptcy, insolvency and the relief of debtors, (y) rules of law governing
specific performance, injunctive relief or other equitable remedies, and (z)
actions or omissions of parties other than the Company; provided, however, that
-------- -------
the Company has no Knowledge of any such actions or omissions. Except as
disclosed in Schedule 3.18, other than (i) those contracts, agreements, and
instruments filed as an exhibit to the 1998 Form 10-K and (ii) agreements
relating exclusively to the Company's preclinical development activities, the
Company has not granted to any Person rights, whether exclusive or nonexclusive,
to develop, manufacture, assemble, distribute, market, or sell its (i)
pleconaril, (ii) hepatitis C or (ii) respiratory syncytial virus products, and
has not granted any rights that limit the Company's exclusive right to develop,
manufacture, assemble, distribute, market, or sell such products.
In connection with the License Agreement: (i) no violation,
breach, event of default or event that, but for the giving of notice or the
lapse of time or both, would constitute an event of default exists thereunder;
(ii) through the date hereof, Sanofi has selected, with respect to each Product
(as defined in the License Agreement) developed by the Company, the option set
forth in Section 3.2(b) therein which provides that Sanofi has the right to use
all information and data developed by the Company thereunder for applying for
Registrations (as defined in the License Agreement) of the Products in the
European Union, without joining the Company in the Development Work (as defined
in the License Agreement) of the Products in the Territory (as defined in the
License Agreement); and (iii) the License Agreement permits the Company to
develop all therapeutic applications for diseases caused by picornaviruses which
the Company is now developing, including but not limited to viral meningitis and
viral respiratory illness. None of the compounds currently in development by the
Company for treatment of hepatitis C are subject to any rights of BI under the
Research Agreement.
<PAGE>
17
3.19 No Material Adverse Change. Except as disclosed in Schedule
--------------------------
3.19, since December 31, 1998: (i) the Company has not incurred any material
liability or obligation (indirect, direct or contingent), or entered into any
material oral or written agreement or other transaction, that is not in the
ordinary course of business or that would reasonably be expected to result in a
Material Adverse Effect; (ii) the Company has not sustained any loss or
interference with its business or properties from fire, flood, windstorm,
accident or other calamity (whether or not covered by insurance) that has had or
that would reasonably be expected to have a Material Adverse Effect; (iii) there
has been no material change in the indebtedness of the Company; (iv) there has
been no dividend or distribution of any kind declared, paid or made by the
Company on any class of its Capital Stock; (v) the Company has not made (nor
does it propose to make) (a) any material change in its accounting methods or
practices, (b) any material change in the depreciation or amortization policies
or rates adopted by it, in the case of both (a) and (b), except as may be
required by law or applicable accounting standards or (c) in a manner
inconsistent with the Company's past practice, any grant or award of stock-based
compensation or material increase in compensation to any employee or material
modification to any such grant or award or any Benefit Plan; and (vi) there has
been no event causing a Material Adverse Effect, nor any development that would,
singly or in the aggregate, reasonably be expected to result in a Material
Adverse Effect.
3.20 Insurance. The Company has in full force and effect (i)
---------
product liability, (ii) fire and (iii) casualty insurance policies, in each
case, with financially sound and responsible insurance companies, and with
respect to clauses (ii) and (iii) above, with extended coverage, sufficient in
amount (subject to reasonable deductions) in respect of its properties that
might be damaged or destroyed.
3.21 Rights Plan. The Company has not adopted a stockholders
-----------
rights plan, poison pill or similar arrangement other than the Rights Plan. The
consummation of the transactions contemplated by the Transaction Documents
(including, without limitation, the (i) acquisition by the Purchaser of the
Securities pursuant hereto, (ii) conversion of the Preferred Stock into Common
Stock as provided for in the Certificate of Designation and/or (iii) exercise of
the Warrants) will not by itself cause any holder of a Right (as defined in the
Rights Plan) to have the right to exercise any such Right in whole or in part.
3.22 Broker's Fees. Except for any fees payable to Perseus-Soros
-------------
Management and as previously disclosed to the Purchaser in writing, the Company
has not incurred, and will not incur, directly or indirectly, as a result of any
<PAGE>
18
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 Investment Company. The Company is not an "investment
------------------
company" within the meaning of the Investment Company Act of 1940, as amended.
3.24 Exemption from Registration; Restrictions on Offer and Sale of
--------------------------------------------------------------
Same or Similar Securities. Assuming the representations and warranties of
- --------------------------
the Purchaser set forth in Section 4.5 hereof are true and correct in all
material respects, the offer and sale of the Securities made pursuant to this
Agreement will be exempt from the registration requirements of the Act. Neither
the Company nor any Person acting on its behalf has, in connection with the
offering of the Securities engaged in (i) any form of general solicitation or
general advertising (as those terms are used within the meaning of Rule 502(c)
under the Act), (ii) any action involving a public offering within the meaning
of Section 4(2) of the Act, or (iii) any action that would require the
registration under the Act of the offering and sale of the Securities pursuant
to this Agreement or that would violate applicable state securities or "blue
sky" laws. The Company has not made and will not prior to the Closing make,
directly or indirectly, any offer or sale of shares of its Capital Stock, or any
Options, if as a result the offer and sale of the Securities contemplated
hereby, or any of them, could fail to be entitled to exemption from the
registration requirements of the Act. As used herein, the terms "offer" and
-----
"sale" have the meanings specified in Section 2(3) of the Act.
- -----
40 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
The Purchaser hereby represents and warrants to the Company that the
following are true and correct as of the Closing Date:
4.1 Existence and Power. The Purchaser is a limited partnership
-------------------
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite power and authority to own, lease and
operate its properties and to conduct its business as currently conducted.
4.2 Power and Authority. The Purchaser has the full power and
-------------------
authority to execute and deliver this Agreement and the other Transaction
Documents and to perform its obligations hereunder. The execution, delivery and
performance by the Purchaser of this Agreement and the other Transaction
Documents and the consummation by the Purchaser of the transactions contemplated
hereby and
<PAGE>
19
thereby have been duly authorized by the Purchaser. Each this Agreement and the
other Transaction Documents has been duly executed and delivered by the
Purchaser and each is a valid and binding agreement of the Purchaser,
enforceable against the Purchaser in accordance with its terms.
4.3 No Contravention, Conflict, Breach, Etc. The execution,
----------------------------------------
delivery and performance of this Agreement and the other Transaction Documents
by the Purchaser and to which it is a party and the consummation of the
transactions contemplated hereby and thereby will not conflict with, contravene
or result in a breach or violation of any of the terms and provisions of, or
constitute a default under, (i) the partnership agreement or other
organizational documents of the Purchaser, (ii) any Law of any Governmental
Authority having jurisdiction over the Purchaser, or (iii) any material
agreement to which the Purchaser is a party.
4.4 Consents. No consent, approval, authorization, order,
--------
registration, filing, or qualification of or with any Governmental Authority or
other Person (whether acting in an individual, fiduciary or other capacity) is
required to be made or obtained by the Purchaser for the consummation of the
transactions contemplated hereby and by the other Transaction Documents.
4.5 Acquisition for Own Account. The Securities to be acquired by
---------------------------
the Purchaser pursuant to this Agreement and the shares of capital stock
issuable under the exercise or conversion of the Securities are being and will
be acquired by the Purchaser for its own account and with no intention of
distributing or reselling the Securities in any transaction that would be in
violation of the Act or the securities laws of any state, without prejudice,
however, to the rights of the Purchaser at all times to sell or otherwise
dispose of all or any part of the Securities and the shares of capital stock
issuable under the exercise or conversion of the Securities under an effective
registration statement under the Act, under an exemption from such registration
available under the Act, and subject, nevertheless, to the disposition of the
Purchaser's property being at all times within its control. The Purchaser (i)
is an "accredited investor," as defined in Regulation D promulgated by the SEC
under the Act, (ii) has such knowledge, sophistication and experience in
business and financial matters that it is capable of evaluating the merits and
risks of an investment in the Securities and the shares of capital stock
issuable under the exercise or conversion of the Securities, and (iii) can bear
the economic risk of an investment in the Securities and the shares of capital
stock issuable under the exercise or conversion of the Securities and can afford
a complete loss of such investment. Neither the Purchaser nor any Affiliate of
the Purchaser, including Perseus-Soros Management, has made any offer to any
Person to sell or a solicitation of an offer to buy securities of the Company,
<PAGE>
20
nor has such party engaged in any form of general solicitation or general
advertising in connection with the purchase of securities of the Company
hereunder. Notwithstanding the foregoing, nothing contained in this Section 4.5
shall affect or be deemed to modify any representation or warranty made by the
Company.
4.6 Hart-Scott-Rodino. The Purchaser is its own Ultimate Parent
-----------------
Entity. As calculated under Section 801.11 of the regulations promulgated under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, the
Purchaser has less than $10 million in each of Annual Net Sales and Total
Assets. The capitalized terms in this Section 4.6 shall have the meanings
ascribed to them in the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
50 CERTAIN COVENANTS AND AGREEMENTS.
5.1 Publicity. From and after the date of this Agreement, except as
---------
required by law, regulation or stock exchange requirements, neither (i) the
Company or any of its Affiliates nor (ii) the Purchaser or any of its Affiliates
shall, without the written consent of the other, make any public announcement or
issue any press release with respect to the transactions contemplated by this
Agreement. In no event will either (i) the Company or any of its Affiliates or
(ii) the Purchaser or any of its Affiliates make any public announcement or
issue any press release with respect to the transactions contemplated by this
Agreement without consulting with the other party, to the extent feasible, as to
the content of such public announcement or press release.
5.2 Use of Proceeds. The proceeds from the sale of Securities
---------------
shall be used by the Company for general corporate purposes.
5.3 Board of Directors.
------------------
(a) So long as the Purchaser or its Affiliates 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, the
Company shall use its best efforts to ensure that the Company's Board of
Directors shall consist of at least one Purchaser Director.
<PAGE>
21
(b) In connection with the foregoing paragraph, the
Purchaser shall be entitled to recommend two candidates to the Company to become
members of the Board of Directors, one of whom the Company shall nominate and
unanimously recommend to the stockholders to become a member of the Board of
Directors (the "Purchaser Director"). A vacancy in the directorship held by the
------------------
Purchaser Director shall be filled by the Board of Directors, who shall select
one of two candidates recommend by the Purchaser.
(c) The Purchaser Director shall not be entitled to any
compensation for his or her participation on the Company's Board of Directors
other than reimbursement for the reasonable out-of-pocket expenses, if any,
incurred by such Purchaser Director in connection with the performance of his or
her duties. Notwithstanding the foregoing sentence, the Purchaser Director shall
be entitled to receive the same consideration paid to other Related Directors in
their capacity as members of the Company's Board of Directors.
5.4 Purchaser Rights. From and after the Closing Date, so long as
----------------
the Purchaser or its Affiliates 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 (the "Consultation Period"):
-------------------
(a) The Purchaser shall be able to appoint a non-voting
representative to attend meetings of the Board of Directors of the Company, to
change the representative so appointed at any time and, upon the resignation or
other vacancy of such representative for any reason, to reappoint such a
representative. In addition, the Company shall provide the Purchaser with a copy
of any materials to be distributed or discussed at such meetings at the same
time as provided to members of the Board of Directors.
(b) During the Consultation Period, the Purchaser shall be
entitled, from time to time, to make proposals, recommendations and suggestions
to the Company relating to the business and affairs of the Company.
<PAGE>
22
(c) During the Consultation Period, the Company shall permit
the Purchaser at all reasonable times and at the Purchaser's expense, to discuss
the Company's business and affairs with its officers and directors.
(d) During the Consultation Period, the Company shall permit
the Purchaser, at all reasonable times and at the Purchaser's expense, to
examine such books, records, documents and other written information in the
possession of the Company relating to its affairs as the Purchaser may
reasonably request.
(e) Anything in this Section 5.4 to the contrary
notwithstanding, the rights granted to the Purchaser under this Section 5.4
shall be suspended during any period of time during which the Company's Board of
Directors includes at least one Purchaser Director.
5.5 SEC Filings. From and after the date of this Agreement, the
-----------
Company agrees that it will use commercially reasonable efforts to file with the
SEC, within the time periods specified in the SEC's rules and regulations, (i)
all quarterly and annual financial information required to be filed with the SEC
on Forms 10-Q and 10-K, (ii) all current reports required to be filed with the
SEC on Form 8-K and (iii) any other information required to be filed with the
SEC. Further, the Company agrees that it will, for so long as the Purchaser or
its Affiliates continues to hold any Securities, use its best efforts to qualify
for use of Form S-3 under the Act.
5.6 Restrictions on Transfer; Legends.
---------------------------------
(a) The Purchaser agrees that it will not Transfer any
of the Restricted Securities, except pursuant to an effective registration
statement under the Act or an applicable exemption from registration under the
Act.
(b) So long as the Restricted Securities are not sold
pursuant to an effective registration statement under the Act or pursuant to
Rule 144 under the Act, the Restricted Securities shall be subject to a stop-
transfer order and the certificates therefor shall bear the following legend by
which each holder thereof shall be bound:
"THE [WARRANTS EVIDENCED BY THIS WARRANT CERTIFICATE/SHARES
REPRESENTED BY THIS CERTIFICATE] HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER
--------------
<PAGE>
23
ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION
OR UNLESS VIROPHARMA INCORPORATED RECEIVES AN OPINION OF COUNSEL
REASONABLY ACCEPTABLE TO IT THAT SUCH OFFER, SALE, PLEDGE OR TRANSFER
IS EXEMPT FROM ANY REGISTRATION OR PROSPECTUS DELIVERY REQUIREMENTS OF
THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS."
(c) The Company shall, upon the written request of the
holder of the Restricted Securities and receipt by the Company of evidence,
including an opinion of counsel to the Purchaser that is acceptable to the
Company, reasonably satisfactory to it that such legend may be removed, issue
certificates for such Restricted Securities that do not bear the legend
described in Section 5.6(b).
5.7 Preemptive Right. After the date hereof, the Company shall
-----------------
give prior written notice to the Purchaser of the proposed private placement of
any Capital Stock or other equity securities by the Company for cash, other than
(i) issuances pursuant to the Company's equity compensation or stock option
plans and (ii) issuances pursuant to the Rights Plan (each a "New Issuance") at
------------
a price below $6.20 per share (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). Such notice shall specify the number
and class of securities to be issued, the rights, terms and privileges thereof
and the price at which such securities will be issued. By written notice to the
Company given within 15 Business Days of being notified of such New Issuance,
the Purchaser shall be entitled to purchase all, but not less than all, of the
Capital Stock or other securities contemplated by the New Issuance; provided,
--------
however, that the Purchaser shall not have any right to purchase securities
- -------
pursuant to this Section 5.7 if, prior to a sale of securities to the Purchaser
pursuant to this Section 5.7, such securities would be required to be registered
under the Act; provided further that if the Purchaser does not timely notify the
-------- -------
Company of its election to purchase all of the New Issuance on the terms
specified in the foregoing notice, or unless the Company or the placement agent
for the New Issuance reasonably believes that including the Purchaser in the
group of investors for the New Issuance will materially adversely affect the
Company's ability to consummate the New Issuance on the terms specified in such
notice, then the Purchaser shall be permitted to invest in the New Issuance in
such amount to be reasonably determined in good faith by the Company.
<PAGE>
24
The closing of any purchase pursuant to this Section 5.7 shall be held
at the time and place of the closing of, and on the same terms and conditions
as, the New Issuance, or at such other time and place as the parties to the
transaction may agree.
5.8 Tax Reporting. The parties hereto agree and acknowledge that
-------------
neither party hereto will take the position that the Securities issued pursuant
to this Agreement are "Preferred Stock" under Section 305 of the Code and the
parties agree to file all tax returns, reports, forms and other such documents
("Tax Returns") accordingly (the "Reporting Agreement"). The parties further
----------- -------------------
agree that neither party shall take any position inconsistent with the Reporting
Agreement upon examination of any Tax Return, in any refund claim, in any
litigation or otherwise.
5.9 Board of Directors. As soon as practicable after the date
------------------
hereof but no later than May 13, 1999, the Board of Directors shall have
appointed a Purchaser Director to the Board of Directors to serve until the
Company's 2001 annual meeting.
5.10 Idemnification Agreement. Concurrently with the appointment
-------------------------
of the initial Purchaser Director, and thereafter with respect to future
Purchaser Directors, the Company shall enter into an indemnification agreement
with any Purchaser Directors, substantially similar in form and content to the
indemnification agreements between the Company and any current directors. Such
indemnification agreement shall provide that each Purchaser Director will be
indemnified against all liabilities and expenses incurred in connection with his
services to the Company to the fullest extent permitted by Delaware law.
60 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
The representations and warranties, covenants and agreements contained
herein shall survive the execution and delivery of this Agreement and the
Closing hereunder. The foregoing notwithstanding, the Company's liability to
the Purchaser for breaches of, or inaccuracies in, any of the Company's
representations and warranties contained in Section 3 (other than Sections 3.2
(Power and Authority) and 3.7 (Capitalization)), shall expire 24 months
following the Closing Date (unless the Purchaser shall have given notice to the
Company claiming a breach thereof prior to such date) and there shall be no
expiration of the time when a claim may be made by the Purchaser for breach of
or any inaccuracy or misrepresentation in Sections 3.2 (Power and Authority),
and 3.7 (Capitalization). All statements contained herein or in any
certificate, exhibit, schedule or other writing delivered in connection with the
<PAGE>
25
transactions contemplated hereby shall be deemed representations and warranties
of the respective parties making them.
70 INDEMNIFICATION.
Except as otherwise provided in this Section 7, the Company agrees to
indemnify, defend and hold harmless the Purchaser and its Affiliates and their
respective officers, directors, agents, employees, subsidiaries, partners,
members and controlling persons to the fullest extent permitted by law from and
against any and all claims, losses, liabilities, damages, deficiencies,
judgements, assessments, fines, settlements, costs or expenses (including
interest, penalties and reasonable fees, disbursements and other charges of
counsel) (collectively, "Losses") based upon, arising out of or otherwise in
------
respect of any inaccuracy in or any breach of any representation, warranty,
covenant or agreement of the Company contained in this Agreement or any other
Transaction Document.
Notwithstanding anything to the contrary in this Section 7, the
indemnification and contribution provisions of Section 8 shall govern any claim
made with respect to registration statements filed pursuant thereto or sales
made thereunder.
80 REGISTRATION RIGHTS.
The Company hereby agrees to provide registration rights with respect
to the Registrable Securities as set forth below.
8.1 Securities Subject to this Agreement.
------------------------------------
(a) Registrable Securities. For the purposes of this Section 8,
----------------------
Registrable Securities will cease to be Registrable Securities when such
Registrable Securities are sold and otherwise transferred pursuant to Rule 144
under the Act or a registration statement covering such Registrable Securities
has been declared effective under the Act by the SEC and such Registrable
Securities have been disposed of pursuant to such effective registration
statement.
(b) Holders of Registrable Securities. A Person is deemed to be a
---------------------------------
holder of Registrable Securities whenever such Person owns of record Registrable
Securities, or holds a warrant to purchase, or a security convertible into or
exercisable or exchangeable for, Registrable Securities whether or not such
acquisition or conversion has actually been effected and disregarding any legal
restrictions upon the exercise of such rights. If the Company receives
conflicting instructions, notices or
<PAGE>
26
elections from two or more persons with respect to the same Registrable
Securities, the Company may act upon the basis of the instructions, notice or
election received from the registered owner of such Registrable Securities.
Registrable Securities issuable upon exercise of an option or upon conversion of
another security shall be deemed outstanding for the purposes of this Section 8.
8.2 Demand Registration.
-------------------
(a) Request for Demand Registration. At any time after the date
-------------------------------
hereof, the holders of 25.0% of the outstanding Registrable Securities (the
"Stockholders") may make a written request (the "Demand Notice") for
- ------------- -------------
registration of Registrable Securities under the Act, and under the securities
or blue sky laws of any jurisdiction designated by such holder or holders (a
"Demand Registration"); provided, that the Company will not be required to
- -------------------- --------
effect more than two Demand Registrations in the aggregate at the request of the
holders of Registrable Securities pursuant to this Section 8.2(a); provided,
--------
further, that the Company shall not be required to effect more than one
- -------
registration pursuant to this section in any six-month period. Notwithstanding
the foregoing, the Company shall not be required to effect any Demand
Registration unless the anticipated aggregate proceeds to the selling holders
would equal or exceed $2,000,000. Upon a request for a Demand Registration, the
Company shall use its best efforts to prepare and file with the SEC, as soon as
practicable, a registration statement for an offering to be made on a continuous
basis pursuant to Rule 415 of the Act (or any successor rule or similar
provision then in effect) (a "Shelf Registration Statement") registering the
----------------------------
resale from time to time by the Stockholders thereof of their Registrable
Securities (the "Demand Shelf Registration"). Within fifteen (15) days after
-------------------------
the receipt of the Demand Notice, the Company shall give written notice thereof
to all holders holding Registrable Securities and include in such registration
all Registrable Securities held by a holder thereof with respect to which the
Company has received written requests for inclusion therein at least ten (10)
days prior to the filing of the Demand Shelf Registration.
No Person has been granted registration rights that are inconsistent
with the rights to be granted to the Purchaser in this Agreement. Other than the
Amended and Restated Investors' Rights Agreement, dated May 31, 1996 (the
"Investors' Rights Agreement"), the Company has not entered into any agreement
- ----------------------------
pursuant to which the Company has granted registration rights. Except those
Persons having the right to piggy-back on a Demand Registration pursuant to the
Investors' Rights Agreement and disclosed in Schedule 8.2, no Person has the
right to piggy-back on a Demand Registration. To the extent any Person has the
right to piggy-back on a Demand Registration, the Company shall use its best
efforts to promptly obtain a waiver of any
<PAGE>
27
such rights. Unless holders of a majority of the Registrable Securities to be
included in the Demand Registration consent in writing, no other Person (other
than (i) any other holder of Registrable Securities and (ii) any Person
disclosed in Schedule 8.2 who has the right to piggy-back on a Demand
Registration pursuant to the Investors' Rights Agreement for which the Company
has not obtained a waiver of such right after using its best efforts to promptly
obtain such waiver), shall be permitted to offer securities under any such
Demand Registration.
(b) Effective Demand Registration. A registration shall not
-----------------------------
constitute a Demand Registration until it has become effective under the Act and
remains effective until the earlier of the (i) completion of any offering of
securities thereunder and (ii) expiration of the second anniversary (plus any
Blackout Period, as defined below) from date on which it first became effective
under the Act (unless withdrawn upon the written request of the holders). The
Company shall use its best efforts to cause any registration statement filed
pursuant to Section 8.2(a) to be declared effective under the Act as soon as
practicable (and shall promptly notify in writing the Stockholders once any such
registration statement has been declared effective).
(c) Blackout Periods. If the Demand Shelf Registration (or any
----------------
Subsequent Shelf Registration, as defined below) is interfered with by any stop
order, injunction or other order or requirement of the SEC or any other
governmental agency or court, the Company shall use its best efforts to obtain
the prompt withdrawal of any order suspending the effectiveness thereof
(including, without limitation, amend the registration statement concerned in a
manner reasonably expected to obtain the withdrawal of the order suspending the
effectiveness thereof), and such Demand Shelf Registration (or any Subsequent
Shelf Registration) will be deemed not to have been effective during the period
of such interference until the offering of Registrable Securities pursuant to
such Shelf Registration Statement (or Subsequent Shelf Registration Statement)
may legally resume (the "Blackout Period").
---------------
(d) Subsequent Shelf Registration. Notwithstanding the foregoing
-----------------------------
paragraph, if prior to the second anniversary (plus any Blackout Period) from
the date the Demand Shelf Registration covering the Registrable Securities has
been declared effective under the Act, the Company has failed to obtain the
withdrawal of any stop order, injunction or other order suspending the
effectiveness within 60 days of such cessation of effectiveness, the Company
shall file an additional Shelf Registration covering the Registrable Securities
(a "Subsequent Shelf Registration"). If a Subsequent Shelf Registration is
-----------------------------
filed, the Company shall use its best efforts to cause the Subsequent Shelf
Registration to be declared effective as soon as practicable after such filing
and to keep such Registration Statement continuously effective until the
<PAGE>
28
earlier of the (i) completion of any offering of securities thereunder; (ii)
expiration of the second anniversary (plus any Blackout Period, as defined
below) from date on which it first became effective under the Act (unless
withdrawn upon the written request of the holders); and (iii) date another
Subsequent Shelf Registration covering the Registrable Securities has been
declared effective under the Act. If the registration required under this
Section 8 is deemed not to have been effected then the Company shall continue to
be obligated to effect a registration statement pursuant to this Section 8.
(e) Underwriting Procedures. If holders of a majority of the
-----------------------
Registrable Securities included in the Demand Registration so elect, the
offering of such Registrable Securities pursuant to such Demand Registration
shall be in the form of a firm commitment underwritten offering and the managing
underwriter or underwriters selected for such offering shall be a nationally
recognized investment banking firm selected by the Company with the consent of
such holders, which consent will not be unreasonably delayed or withheld (an
"Approved Underwriter"). In such event, if the Approved Underwriter advises the
- ---------------------
Company in writing that in its opinion the aggregate amount of such securities
requested to be included in such offering is sufficiently large to have a
material adverse effect on the success of such offering, the Company shall
include in such registration only the aggregate amount of securities that in the
opinion of the Approved Underwriter may be sold without any such material
adverse effect and shall first reduce (to zero, if necessary) the amount of
securities sought to be included therein by the holders of Registrable
Securities and, if such reduction is not sufficient, reduce, pro rata the amount
of securities to be included by each holder who wishes to participate in the
Demand Registration through the exercise of piggy-back registration rights as
contemplated by Section 8.2(a). To the extent more than 10.0% of the
Registrable Securities so requested to be registered are excluded from the
offering, then the holders of such Registrable Securities shall have the right
to one additional Demand Registration under this Section 8.2 with respect to
such Registrable Securities.
(f) Deferral of Registration. Notwithstanding the foregoing, if,
------------------------
at any time prior to the effective date of the registration statement with
respect to a Demand Registration, the Company is: (i) pursuing an underwritten
offering of shares of its Capital Stock for its own account, or engaged in or
proposes to engage in (A) financing, (B) acquisition of the capital stock or
substantially all the assets of any other person (other than in the ordinary
course of business) or (C) any disposition of material assets (other than in the
ordinary course of business), any tender offer or any merger, consolidation,
corporate reorganization or restructuring or other similar transaction; and (ii)
the Board of Directors, using good faith, determines that it
<PAGE>
29
would be seriously detrimental to the Company for a registration statement to be
filed at such time, the Company may defer the filing of a registration statement
with respect to any Demand Registration required by this Section 8.2 until a
date not later than 90 days from the date of the Deferral Notice (as defined
below) (the "Deferral Period"). If the Board of Directors of the Company makes
---------------
such determination, the Company shall give written notice (the "Deferral
--------
Notice") of such determination to the holders of Registrable Securities;
- ------
provided, that, the Company may exercise its right to delay a Demand
- -------- ----
Registration hereunder only once in any twelve-month period. The Company shall
notify the holders of the expiration of the Deferral Period and shall cause the
registration statement with respect to the Demand Registration to be filed on
the fifth Business Day following the expiration of the Deferral Period (the
"Withdrawal Period") (or, if registration on such date is not practicable, as
-----------------
promptly as possible thereafter) unless, prior to the expiration of the
Withdrawal Period, the holders holding a majority of Registrable Securities to
be included in any such Demand Registration, by written notice to the Company,
withdraws the request made under this Section 8.2, in which case, such request
shall not count as one of the Demand Registrations permitted hereunder and the
Company shall pay all Registration Expenses in connection with such
registration.
8.3 Holdback Agreements.
-------------------
(a) Restrictions on Public Sale by Holders of Registrable
-----------------------------------------------------
Securities. To the extent not inconsistent with applicable law, the Purchaser
- ----------
agrees that in connection with a registered public offering of the Company's
equity securities, it will not effect any public sale or distribution of any
Registrable Securities or of any securities convertible into or exchangeable or
exercisable for such Registrable Securities, including a sale pursuant to Rule
144 under the Securities Act, during the 10 Business Days prior to, and during
the 30 days beginning on, the effective date of the Company's registration
statement (except as part of such registration), if and to the extent reasonably
requested by the Company in writing in the case of a non-underwritten public
offering or to the extent reasonably requested by the Underwriter in writing in
the case of an underwritten public offering.
(b) Restrictions on Public Sale by the Company. The Company
------------------------------------------
agrees not to effect any public sale or distribution of any of its equity
securities, or any securities convertible into or exchangeable or exercisable
for such equity securities (except pursuant to registrations on Forms S-4 or S-8
of the Act or any successor or other forms not available for registering equity
securities for sale to the public) during the 10 Business Days prior to, and
during the 30 day period beginning
<PAGE>
30
on the effective date of any registration statement in which the holders of
Registrable Securities are participating.
8.4 Registration Procedures.
-----------------------
(a) Obligations of the Company. Whenever registration of
--------------------------
Registrable Securities has been requested pursuant to Section 8.2 of this
Agreement, the Company shall use reasonable efforts to effect the registration
and sale of such Registrable Securities in accordance with the intended method
of distribution thereof, and in connection with any such request, the Company
shall, as soon as reasonably practicable:
(i) prepare and file with the SEC (in any event not
later than forty-five (45) days after receipt of a request to file a
registration statement with respect to Registrable Securities) a
registration statement, and use its best efforts to cause such registration
statement to become effective under the Act; provided, however, that before
-------- -------
filing a registration statement or prospectus or any amendments or
supplements thereto, the Company shall (A) provide counsel selected by the
holders of a majority of the Registrable Securities being registered in
such registration ("Holders' Counsel") with an opportunity to participate
----------------
in the preparation of such registration statement and each prospectus
included therein (and each amendment or supplement thereto) to be filed
with the SEC, which documents shall be subject to the review of Holders'
Counsel, and (B) notify the Holders' Counsel and each seller of Registrable
Securities of any stop order issued or threatened by the SEC and take all
reasonable action required to prevent the entry of such stop order or to
remove it if entered;
(ii) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for a period which will terminate when all Registrable
Securities covered by such registration statement have been sold (but not
before the expiration of the ninety (90) day period referred to in Section
4(3) of the Act and Rule 174 thereunder, if applicable), and comply with
the provisions of the Act with respect to the disposition of all securities
covered by such registration statement during such period in accordance
with the intended methods of disposition by the sellers thereof set forth
in such registration statement;
<PAGE>
31
(iii) furnish to each seller of Registrable Securities,
prior to filing a registration statement, copies of such registration
statement as is proposed to be filed, and thereafter such number of copies
of such registration statement, each amendment and supplement thereto (in
each case including all exhibits thereto), the prospectus included in such
registration statement (including each preliminary prospectus) and such
other documents as each such seller may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by such
seller;
` (iv) use reasonable efforts to register or qualify
such Registrable Securities under such other securities or blue sky laws of
such jurisdictions as any seller of Registrable Securities requests, and to
continue such qualification in effect in such jurisdiction for as long as
is permissible pursuant to the laws of such jurisdiction, or for as long as
any such seller requests or until all of such Registrable Securities are
sold, whichever is shortest, and do any and all other acts and things which
may be reasonably necessary or advisable to enable any such seller to
consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller; provided, however, that the Company shall
-------- -------
not be required to (A) qualify generally to do business in any jurisdiction
where it would not otherwise be required to qualify but for this Section
8.4(a)(iv), (B) subject itself to taxation in any such jurisdiction or (C)
consent to general service of process in any such jurisdiction;
(v) use reasonable efforts to cause the Registrable
Securities covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary by virtue of the business and operations of the Company to enable
the seller or sellers of Registrable Securities to consummate the
disposition of such Registrable Securities;
(vi) notify each seller of Registrable Securities at
any time when a prospectus relating thereto is required to be delivered
under the Act, upon discovery that, or upon the happening of any event as a
result of which, the prospectus included in such registration statement
contains an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under which
they were made, and the Company shall promptly prepare a supplement or
amendment to such prospectus and furnish to each seller a reasonable number
of copies of a supplement to or an amendment
<PAGE>
32
of such prospectus as may be necessary so that, after delivery to the
purchasers of such Registrable Securities, such prospectus shall not
contain an untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under which
they were made;
(vii) enter into and perform customary agreements
(including an underwriting agreement in customary form with the Approved
Underwriter, if any, selected as provided in Section 8.2) and take such
other actions as are reasonably required in order to facilitate the
disposition of such Registrable Securities;
(viii) make available for inspection by any seller of
Registrable Securities, any managing underwriter participating in any
disposition pursuant to such registration statement, Holders' Counsel and
any attorney, accountant or other agent retained by any such seller or any
managing underwriter (each, an "Inspector" and collectively, the
---------
"Inspectors"), during regular business hours and upon reasonable advance
-----------
notice, all financial and other records, pertinent corporate documents and
properties of the Company (collectively, the "Records") as shall be
-------
reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers, directors and employees,
and the independent public accountants of the Company, to supply all
information reasonably requested by any such Inspector in connection with
such registration statement;
(ix) if such sale is pursuant to an underwritten
offering, obtain a "cold comfort" letter from the Company's independent
public accountants in customary form and covering such matters of the type
customarily covered by "cold comfort" letters as Holders' Counsel or the
managing underwriter reasonably requests;
(x) furnish, at the request of any seller of
Registrable Securities on the date such securities are delivered to the
underwriters for sale pursuant to such registration or, if such securities
are not being sold through underwriters, on the date the registration
statement with respect to such securities becomes effective, an opinion,
dated such date, of counsel representing the Company for the purposes of
such registration, addressed to the underwriters, if any, and to the seller
making such request, covering such legal matters with respect to the
registration in respect of which such opinion is being
<PAGE>
33
given as such seller may reasonably request and are customarily included in
such opinions;
(xi) otherwise use reasonable efforts to comply with
all applicable rules and regulations of the SEC, and make available to its
security holders, as soon as reasonably practicable but no later than
fifteen (15) months after the effective date of the registration statement,
an earnings statement covering a period of twelve (12) months beginning
after the effective date of the registration statement, in a manner which
satisfies the provisions of Section 11(a) of the Act;
(xii) cause all such Registrable Securities to be
listed on each securities exchange on which similar securities issued by
the Company are then listed (including NASDAQ), provided, that the
applicable listing requirements are satisfied;
(xiii) cooperate with each seller of Registrable
Securities and each underwriter participating in the disposition of such
Registrable Securities and their respective counsel in connection with any
filings required to be made with the National Association of Securities
Dealers, Inc. (the "NASD"); and
----
(xiv) use reasonable efforts to take all other steps
necessary to effect the registration of the Registrable Securities
contemplated hereby.
(b) Notice to Discontinue. Each holder of Registrable Securities
---------------------
agrees that, upon receipt of any written notice from the Company of the
happening of any event of the kind described in Section 8.4(a)(vi), such holder
shall forthwith discontinue disposition of Registrable Securities pursuant to
the registration statement covering such Registrable Securities until such
holder's receipt of the copies of the supplemented or amended prospectus
contemplated by Section 8.4(a)(vi) and, if so directed by the Company, such
holder shall deliver to the Company (at the Company's expense) all copies, other
than permanent file copies then in such holder's possession, of the prospectus
covering such Registrable Securities which is current at the time of receipt of
such notice. If the Company shall give any such notice, the Company shall
extend the period during which such registration statement shall be maintained
effective pursuant to this Agreement (including without limitation the period
referred to in Section 8.4(a)(ii)) by the number of days during the period from
and including the date of the giving of such notice pursuant to Section
8.4(a)(vi) to and
<PAGE>
34
including the date when the holder shall have received the copies of the
supplemented or amended prospectus contemplated by and meeting the requirements
of Section 8.4(a)(vi).
8.5 Registration Expenses. The Company shall pay all expenses
---------------------
(other than underwriting discounts and commissions) arising from or incident to
the Company's performance of, or compliance with, Section 8 of this Agreement,
including without limitation, (i) SEC, stock exchange, NASDAQ and NASD
registration and filing fees, (ii) all fees and expenses incurred by Company in
complying with securities or blue sky laws (including reasonable fees, charges
and disbursements of counsel in connection with blue sky qualifications of the
Registrable Securities), (iii) all printing, messenger and delivery expenses,
and (iv) the fees, charges and disbursements of counsel to the Company and of
its independent public accountants and any other accounting and legal fees,
charges and expenses incurred by the Company (including without limitation any
expenses arising from any special audits incident to or required by any
registration or qualification) in connection with any Demand Registration
pursuant to the terms of this Agreement, regardless of whether such registration
statement is declared effective. In connection with each registration
hereunder, the Company shall reimburse the holders of Registrable Securities
being registered in such registration for the reasonable fees, charges and
disbursements of not more than one counsel chosen by the holders of a majority
of Registrable Securities being registered in such registration in an amount not
to exceed $10,000. All of the expenses described in this Section 8.5 are
referred to herein as "Registration Expenses."
---------------------
8.6 Indemnification; Contribution.
-----------------------------
(a) Indemnification by the Company. The Company agrees to
------------------------------
indemnify, to the fullest extent permitted by law, each holder of Registrable
Securities, its officers, directors, partners, employees, advisors and agents
and each Person who controls (within the meaning of the Act or the Exchange Act)
such holder from and against any and all losses, claims, damages, liabilities
and expenses (including reasonable costs of investigation) arising out of or
based upon any untrue, or alleged untrue, statement of a material fact contained
in any registration statement, prospectus or preliminary prospectus or
notification or offering circular (as amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) or arising out of or
based upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as the same are caused by or contained in any
information furnished in writing to the Company by such holder expressly for use
<PAGE>
35
therein or a failure by such holder to deliver an updated prospectus that has
been filed with the SEC. The Company shall also indemnify any underwriters of
the Registrable Securities, their officers, directors and employees and each
Person who controls such underwriters (within the meaning of the Act and the
Exchange Act) to the same extent as provided above with respect to the
indemnification of the holders of Registrable Securities.
(b) Indemnification by Holders. In connection with any
registration statement in which a holder of Registrable Securities is
participating pursuant to Section 8.2 hereof, each such holder shall furnish to
the Company in writing such information with respect to such holder as the
Company may reasonably request in writing or as may be required by law for use
in connection with any such registration statement or prospectus and each
holder, by its participation in such registration, agrees to indemnify, to the
extent permitted by law, the Company, any underwriter retained by the Company
and their respective directors, officers, employees and each Person who controls
the Company or such underwriter (within the meaning of the Act and the Exchange
Act) to the same extent as the foregoing indemnity from the Company to the
holders of Registrable Securities, but solely with respect to any such
information furnished in writing by or on behalf of such holder.
(c) Conduct of Indemnification Proceedings. Any Person entitled
to indemnification hereunder (the "Registration Rights Indemnified Party")
-------------------------------------
agrees to give prompt written notice to the indemnifying party (the
"Registration Rights Indemnifying Party") after the receipt by the Registration
--------------------------------------
Rights Indemnified Party of any written notice of the commencement of any
action, suit, proceeding or investigation or threat thereof made in writing for
which the Registration Rights Indemnified Party intends to claim indemnification
or contribution pursuant to this Agreement; provided, that the failure so to
--------
notify the Registration Rights Indemnifying Party shall not relieve the
Registration Rights Indemnifying Party of any liability that it may have to the
Registration Rights Indemnified Party hereunder unless, and only to the extent
that, such failure results in the Registration Rights Indemnifying Party's
forfeiture of substantial rights or defenses. If notice of commencement of any
such action is given to the Registration Rights Indemnifying Party as above
provided, the Registration Rights Indemnifying Party shall be entitled to
participate in and, to the extent it may wish, jointly with any other
Registration Rights Indemnifying Party similarly notified, to assume the defense
of such action at its own expense, with counsel chosen by it and reasonably
satisfactory to such Registration Rights Indemnified Party. The Registration
Rights Indemnified Party shall have the right to employ separate counsel in any
such action and participate in the defense thereof, but the fees and expenses of
such counsel (other than reasonable costs of investigation) shall be paid by
<PAGE>
36
the Registration Rights Indemnified Party unless (i) the Registration Rights
Indemnifying Party agrees to pay the same, (ii) the Registration Rights
Indemnifying Party fails to assume the defense of such action with counsel
satisfactory to the Registration Rights Indemnified Party in its reasonable
judgment, (iii) the named parties to any such action (including any impleaded
parties) have been advised by such counsel that either (A) representation of
such Registration Rights Indemnified Party and the Registration Rights
Indemnifying Party by the same counsel would be inappropriate under applicable
standards of professional conduct or (B) there may be one or more legal defenses
available to the Registration Rights Indemnified Party which are different from
or additional to those available to the Registration Rights Indemnifying Party.
No Registration Rights Indemnifying Party shall, without the prior written
consent of each Registration Rights Indemnified Party, settle, compromise or
consent to the entry of any judgment unless such settlement, compromise or
consent includes an unconditional release of the Registration Rights Indemnified
Party from all liability relating thereto. In either of such cases the
Registration Rights Indemnifying Party shall not have the right to assume the
defense of such action on behalf of such Registration Rights Indemnified Party.
No Registration Rights Indemnifying Party shall be liable for any settlement
entered into without its written consent, which consent shall not be
unreasonably withheld, conditioned or delayed.
(d) Contribution. If the indemnification provided for in this
------------
Section 8.6 from the Indemnifying Party is applicable by its terms but
unavailable to a Registration Rights Indemnified Party hereunder in respect of
any losses, claims, damages, liabilities or expenses referred to therein, then
the Indemnifying Party, in lieu of indemnifying such Registration Rights
Indemnified Party, shall contribute to the amount paid or payable by such
Registration Rights Indemnified Party as a result of such losses, claims,
damages, liabilities or expenses in such proportion as is appropriate to reflect
the relative fault of the Registration Rights Indemnifying Party and
Registration Rights Indemnified Party in connection with the actions which
resulted in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. The relative faults of such
Registration Rights Indemnifying Party and Registration Rights Indemnified Party
shall be determined by reference to, among other things, whether any action in
question, including any untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact, has been made by, or
relates to information supplied by, such Registration Rights Indemnifying Party
or Registration Rights Indemnified Party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action. The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include,
subject to the limitations set forth in Sections 8.6(a),
<PAGE>
37
8.6(b) and 8.6(c), any legal or other fees, charges or expenses reasonably
incurred by such party in connection with any investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 8.6(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person.
8.7 Rule 144. The Company covenants that it shall file any
--------
reports required to be filed by it under the Exchange Act and the rules and
regulations adopted by the SEC thereunder; and that it shall take such further
action as each holder of Registrable Securities may reasonably request
(including providing any information necessary to comply with Rules 144 under
the Act), all to the extent required from time to time to enable such holder to
sell Registrable Securities without registration under the Act within the
limitation of the exemptions provided by (a) Rule 144 under the Act, as such
rules may be amended from time to time, or (b) any similar rules or regulations
hereafter adopted by the SEC. The Company shall, upon the request of any holder
of Registrable Securities, deliver to such holder a written statement as to
whether the Company has complied with such requirements.
90 MISCELLANEOUS.
9.1 Performance; Waiver. The provisions of this Agreement may
be modified or amended, and waivers and consents to the performance and
observance of the terms hereof may be given by written instrument executed and
delivered by the Company and the holders of 66_% of the Common Stock issued in
connection with this Agreement (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). The failure at any time to require
performance of any provision hereof shall in no way affect the full right to
require such performance at any time thereafter (unless performance thereof has
been waived in writing in accordance with the terms hereof for all purposes and
at all times by the parties to whom the benefit of such performance is to be
rendered). The waiver by any party to this Agreement of a breach of any
provision hereof shall not be taken or held to be a waiver of any succeeding
breach of such provision or of any other provision.
9.2 Binding Effect; Successors and Assigns. This Agreement shall
--------------------------------------
inure to the benefit of and be binding upon the successors and permitted assigns
of
<PAGE>
38
the parties hereto. Subject to applicable securities laws and the applicable
provisions of this Agreement, the Purchaser may assign any of its rights under
this Agreement (or any of the Transaction Documents) to any of its Affiliates,
employees, members or partners other than the rights described in Sections 5.3
(Board of Directors) and 5.4 (Purchaser Rights) which may only be assigned to
Perseus, LLC, Soros Fund Management LLC or, in each case, to one of their
controlled investment funds. The Company may not assign any of its rights under
this Agreement (or any of the Transaction Documents), except to a successor-in-
interest to the Company, including as a result of a merger, acquisition or
reorganization, without the written consent of the Purchaser. No Person other
than the parties hereto and their successors and permitted assigns is intended
to be a beneficiary of this Agreement.
9.3 Notices. All notices or other communications given or made
-------
hereunder shall be validly given or made if in writing and delivered by
facsimile transmission or in Person at, mailed by registered or certified mail,
return receipt requested, postage prepaid, or sent by a reputable overnight
courier to, the following addresses (and shall be deemed effective at the time
of receipt thereof).
If to the Company:
ViroPharma Incorporated
405 Eagleview Boulevard
Exton, PA 19341
Telecopy: (610) 458-7380
Attention: Thomas F. Doyle, Esq.
with a copies to:
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103-2921
Telecopy: (215) 963-5299
Attention: David R. King, Esq.
<PAGE>
39
If to the Purchaser:
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
Telecopy: (202) 463-6215
Attention: Christopher D. Earl, Ph.D.
and
Perseus Capital, LLC
The Army and Navy Club Building
1627 I Street, N.W., Suite 610
Washington D.C. 20006
Telecopy: (202) 463-6215
Attention: Kenneth M. Socha, Esq.
and
Soros Fund Management, LLC
888 Seventh Avenue
New York, New York 10106
Telecopy: (212) 262-6300
Attention: Michael C. Neus, Esq.
and
Soros Fund Management, LLC
888 Seventh Avenue
New York, New York 10106
Telecopy: (212) 262-6300
Attention: Neal Moszkowski
<PAGE>
40
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy: (212) 757-3990
Attention: Bruce A. Gutenplan, Esq.
or at such other address as a party hereto shall from time to time designate by
written notice, in the manner provided herein, to the other parties hereto.
Notice given in accordance with this Section 9.3 shall be deemed given and
received as of the earlier of (i) actual receipt or (ii) first attempted
delivery which is refused (as opposed to being returned for insufficient
postage/fee, improper address or like cause). All references to days in this
Agreement shall be deemed to refer to calendar days, unless otherwise specified.
If any notice, filing, delivery or payment shall be required by the terms hereof
to be made on a day that is not a Business Day, such notice, filing, delivery or
payment shall be made on the immediately succeeding Business Day.
9.4 Severability. If any term, provision, covenant or
------------
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the Company and the Purchaser directs that such
court interpret and apply the remainder of this Agreement in the manner that it
determines most closely effectuates their intent in entering into this
Agreement, and in doing so particularly take into account the relative
importance of the term, provision, covenant or restriction being held invalid,
void or unenforceable.
9.5 Headings; Interpretation. The index and section headings
------------------------
herein are for convenience only and shall not affect the construction hereof.
References to sections means sections of this Agreement unless the context
otherwise requires. References to herein or hereof mean this Agreement.
9.6 Entire Agreement. This Agreement embodies the entire
----------------
agreement between the parties relating to the subject matter hereof and
supersedes any and all prior oral or written agreements, representations or
warranties, contracts, understandings, correspondence, conversations, and
memoranda, whether written or oral, between the Company and the Purchaser, or
between or among any agents, representatives, parents, Subsidiaries, Affiliates,
predecessors in interest or successors in interest, with respect to the subject
matter hereof.
<PAGE>
41
9.7 No Third Party Rights. Except for the indemnified
---------------------
parties, this Agreement is intended solely for the benefit of the parties hereto
and is not intended to confer any benefits upon, or create any rights in favor
of, any Person (including, without limitation, any stockholder or debtholder of
the Company) other than the parties hereto.
9.8 Remedies for Breach. The parties agree that in addition
-------------------
to any other rights or remedies which may be available at law or equity, the
parties shall be entitled to seek specific performance of any post-Closing duty
or obligation of any party hereto. All remedies, either under this Agreement or
by law or otherwise afforded to any of the parties, shall be cumulative and not
alternative.
9.9 Counterparts. This Agreement may be executed in any
------------
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. The parties hereto
confirm that any facsimile copy of another party's executed counterpart of this
Agreement (or its signature page thereof) will be deemed to be an executed
original thereof.
9.10 Governing Law. This Agreement 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.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
42
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective officers thereunto duly authorized as of
the date first set forth above.
VIROPHARMA INCORPORATED
By:____________________________
Name: Claude H. Nash, Ph.D.
Title: President and Chief Executive Officer
PERSEUS-SOROS BIOPHARMACEUTICAL FUND, LP
By: Perseus-Soros Partners, LLC,
General Partner
By: Perseus Management, LLC,
Member
By:____________________________
Name: Frank H. Pearl
Title: President and Chairman
[SIGNATURE PAGE TO INVESTMENT AGREEMENT]
<PAGE>
[EXECUTION COPY]
EXHIBIT 10.2
THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR UNDER ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE
--------------
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS VIROPHARMA INCORPORATED RECEIVES AN OPINION OF COUNSEL
REASONABLY ACCEPTABLE TO IT THAT SUCH OFFER, SALE, PLEDGE OR TRANSFER IS EXEMPT
FROM ANY REGISTRATION OR PROSPECTUS DELIVERY REQUIREMENTS OF THE SECURITIES ACT
AND ANY APPLICABLE STATE SECURITIES LAWS.
______________________________________________
VIROPHARMA INCORPORATED
COMMON STOCK PURCHASE WARRANT
_______________________________________________
This certifies that, for good and valuable consideration, ViroPharma
Incorporated, a Delaware corporation (the "Company"), grants to Perseus-Soros
-------
BioPharmaceutical Fund, LP, a Delaware limited partnership, and its successors
and assigns (the "Warrantholder"), the right to subscribe for and purchase from
-------------
the Company an aggregate of 595,000 validly issued, fully paid and nonassessable
shares (the "Warrant Shares") of the Company's Common Stock, par value $.002 per
--------------
share (the "Common Stock"), at a price per share equal to $9.53, as adjusted
------------
from time to time in accordance with the provisions of Section 6 (the "Exercise
--------
Price"), at any time prior to 5:00 p.m., New York City time, on May 5, 2004 (the
- -----
"Expiration Date"), subject to the terms, conditions and adjustments herein set
---------------
forth.
This Warrant is being issued in connection with the issue and sale by
the Company of shares of its Series A Convertible Participating Preferred Stock,
par value $.001 per share, pursuant to the terms of an Investment Agreement,
dated as of May 5, 1999 (the "Investment Agreement"), among the Company and the
--------------------
Warrantholder, and is subject to the terms thereof. This Warrant is the
"Warrant" referred to in the Investment Agreement, and the Warrantholder is
-------
entitled to the rights and subject to the obligations contained in the
Investment Agreement.
Capitalized terms used herein and not otherwise defined herein shall
have the meanings ascribed thereto in the Investment Agreement.
<PAGE>
2
1. Exercise of Warrants.
--------------------
1.1 Exercise of Warrant. This Warrant may be exercised, in whole
-------------------
or in part, at any time or from time to time prior to the Expiration Date, by
surrendering to the Company at its principal office, or such other location
mutually agreed upon, this Warrant, with an Exercise Form (as defined herein)
duly executed by the Warrantholder and accompanied by payment of the Exercise
Price for the number of shares of Warrant Shares specified in such Exercise
Form.
1.2 Cashless Exercise. At any time after a Change of Control
-----------------
(as defined herein) but prior to the Expiration Date, in lieu of the payment of
the Exercise Price, the Warrantholder shall have the right (but not the
obligation) to require the Company to convert this Warrant, in whole or in part,
into shares of Warrant Shares (the "Conversion Right") as provided for in this
----------------
Section 1.2. Upon exercise of the Conversion Right, the Company shall deliver to
the Warrantholder (without payment by the Warrantholder of any of the Exercise
Price) that number of shares of Warrant Shares equal to the quotient obtained by
dividing (x) the value of the Warrant or portion thereof being exercised at the
time the Conversion Right is exercised (determined by subtracting (a) the
aggregate Exercise Price in effect immediately prior to the exercise of the
Conversion Right for the number of shares for which the Warrant is being
exercised from (b) the aggregate Market Price (as defined herein) of the shares
of Warrant Shares issuable upon exercise of the Warrant for the number of shares
for which the Warrant is being exercised immediately prior to the exercise of
the Conversion Right) by (y) the Market Price of one share of Common Stock
immediately prior to the exercise of the Conversion Right. The Conversion Right
may be exercised at any time after a Change of Control but prior to the
Expiration Date by surrendering to the Company at its principal office, or such
other location mutually agreed upon, this Warrant, with an Exercise Form duly
executed by the Warrantholder and indicating that the Warrantholder wishes to
exercise the Conversion Right and specifying the total number of shares of
Warrant Shares for which the Warrant is being exercised.
1.3 Delivery of Warrant Shares; Effectiveness of Exercise.
-----------------------------------------------------
(a) Delivery of Warrant Shares. A stock certificate or
--------------------------
certificates for the Warrant Shares specified in the Exercise Form along with a
check for the amount of cash to be paid in lieu of fractional shares, if any,
shall be delivered to the Warrantholder within 5 Business Days after the
Exercise Date; provided, however, that if the Conversion Right is exercised in
-------- -------
accordance with Section 1.2 and a determination by the Board of Directors or an
Independent Financial Expert is required to determine the Market Price of the
Common Stock, such delivery shall be made promptly, but in no event more than 5
Business Days, after such determination is made. If this Warrant shall have been
exercised only in part, the Company shall, at the time of delivery of the stock
certificate or certificates and cash in lieu of fractional
<PAGE>
3
shares, if any, deliver to the Warrantholder a new Warrant evidencing the rights
to purchase the remaining Warrant Shares, which new Warrant shall in all other
respects be identical with this Warrant.
(b) Effectiveness of Exercise. The exercise of this
-------------------------
Warrant shall be deemed to have been effective immediately prior to the close of
business on the Business Day on which this Warrant is exercised in accordance
with Section 1.1 or 1.2 (the "Exercise Date"). The Person in whose name any
-------------
certificate for shares of Common Stock shall be issuable upon such exercise
shall be deemed to be the record holder of such shares of Common Stock for all
purposes on the Exercise Date.
2. Restrictive Legends.
-------------------
2.1 Warrants. Except as otherwise permitted by this Section 2,
--------
each Warrant (and each Warrant issued in substitution for any Warrant pursuant
to Section 4) shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR UNDER ANY APPLICABLE STATE SECURITIES
--------------
LAWS AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS VIROPHARMA INCORPORATED RECEIVES AN
OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT THAT SUCH OFFER, SALE,
PLEDGE OR TRANSFER IS EXEMPT FROM ANY REGISTRATION OR PROSPECTUS DELIVERY
REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES
LAWS."
2.2 Warrant Shares. Except as otherwise permitted by this
--------------
Section 2, each stock certificate for Warrant Shares issued upon the exercise of
any Warrant and each stock certificate issued upon the direct or indirect
transfer of any such Warrant Shares shall be stamped or otherwise imprinted with
a legend in substantially the following form:
"THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR UNDER ANY APPLICABLE STATE
--------------
SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS VIROPHARMA
INCORPORATED RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT
THAT SUCH OFFER, SALE,
<PAGE>
4
PLEDGE OR TRANSFER IS EXEMPT FROM ANY REGISTRATION OR PROSPECTUS DELIVERY
REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES
LAWS."
2.3 Removal of Legends. Notwithstanding the foregoing, the
------------------
Warrantholder may require the Company to issue a Warrant or a stock certificate
for Warrant Shares, in each case without a legend, if either (i) such Warrant or
such Warrant Shares, as the case may be, have been registered for resale under
the Securities Act and sold pursuant to such registration or (ii) if reasonably
requested in writing by the Company, the Warrantholder has delivered to the
Company an opinion of legal counsel (from a firm reasonably satisfactory to the
Company) which opinion shall be addressed to the Company and be reasonably
satisfactory in form and substance to the Company's counsel, to the effect that
such registration is not required with respect to such Warrant or such Warrant
Shares, as the case may be.
3. Reservation and Registration of Shares, Etc. The Company
--------------------------------------------
covenants and agrees as follows:
(a) All Warrant Shares that are issued upon the exercise of
this Warrant will, upon issuance, be validly issued, fully paid and
nonassessable, not subject to any preemptive rights, and free from all taxes,
liens, security interests, charges, and other encumbrances with respect to the
issuance thereof, other than taxes in respect of any transfer occurring
contemporaneously with such issue.
(b) During the period within which this Warrant may be
exercised, the Company will at all times have authorized and reserved, and keep
available free from preemptive rights, a sufficient number of shares of Common
Stock to provide for the exercise of the rights represented by this Warrant.
4. Loss or Destruction of Warrant.
------------------------------
Subject to the terms and conditions hereof, upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant and, in the case of loss, theft or
destruction, of such bond or indemnification as the Company may reasonably
require, and, in the case of mutilation, upon surrender and cancellation of
this Warrant, the Company will execute and deliver a new Warrant of like tenor.
5. Ownership of Warrant.
--------------------
The Company may deem and treat the Person in whose name this Warrant
is registered as the holder and owner hereof (notwithstanding any notations of
<PAGE>
5
ownership or writing hereon made by anyone other than the Company) for all
purposes and shall not be affected by any notice to the contrary, until
presentation of this Warrant for registration of transfer.
6. Certain Adjustments.
-------------------
6.1 The number of Warrant Shares purchasable upon the exercise
of this Warrant and the Exercise Price shall be subject to adjustment as
follows:
(a) Stock Dividends, Subdivision, Combination or
---------------------------------------------
Reclassification of Common Stock. If at any time after the date of the issuance
- --------------------------------
of this Warrant the Company shall (i) pay a dividend on its Common Stock in
shares of its capital stock, (ii) combine its outstanding shares of Common Stock
into a smaller number of shares, (iii) subdivide its outstanding shares of
Common Stock or (iv) issue by reclassification of its shares of Common Stock any
shares of capital stock of the Company, then, on the record date for such
dividend or the effective date of such subdivision or split-up, combination or
reclassification, as the case may be, the number and kind of shares to be
delivered upon exercise of this Warrant will be adjusted so that the
Warrantholder will be entitled to receive the number and kind of shares of
capital stock that such Warrantholder would have owned or been entitled to
receive upon or by reason of such event had this Warrant been exercised
immediately prior thereto, and the Exercise Price will be adjusted as provided
below in paragraph (g).
(b) Extraordinary Distributions. If at any time after the
---------------------------
date of issuance of this Warrant the Company shall distribute to all holders of
its Common Stock (including any such distribution made in connection with a
consolidation or merger in which the Company is the continuing or surviving
corporation and the Common Stock is not changed or exchanged) cash, evidences of
indebtedness, securities or other assets (excluding (i) ordinary course cash
dividends to the extent such dividends do not exceed the Company's retained
earnings and (ii) dividends payable in shares of capital stock for which
adjustment is made under Section 6.1(a)) or rights, options or warrants to
subscribe for or purchase securities of the Company, then in each such case the
number of shares of Common Stock to be delivered to such Warrantholder upon
exercise of this Warrant shall be increased so that the Warrantholder thereafter
shall be entitled to receive the number of shares of Common Stock determined by
multiplying the number of shares such Warrantholder would have been entitled to
receive immediately before such record date by a fraction, the denominator of
which shall be the Market Price per share of Common Stock on such record date
minus the then fair market value (as reasonably determined by the Board of
Directors of the Company in good faith) of the portion of the cash, evidences of
indebtedness, securities or other assets so distributed or of such rights or
warrants applicable to one share of Common Stock (provided that such denominator
shall in no
<PAGE>
6
event be less than $.01) and the numerator of which shall be the Market Price
per share of the Common Stock, and the Exercise Price shall be adjusted as
provided below in paragraph (g).
(c) Pro Rata Repurchases. If at any time after the date of
--------------------
issuance of this Warrant, the Company or any subsidiary thereof shall make a Pro
Rata Repurchase, then the number of shares of Common Stock to be delivered to
such Warrantholder upon exercise of this Warrant shall be increased so that the
Warrantholder thereafter shall be entitled to receive the number of shares of
Common Stock determined by multiplying the number of shares of Common Stock such
Warrantholder would have been entitled to receive immediately before such Pro
Rata Repurchase by a fraction (which in no event shall be less than one) the
denominator of which shall be (i) the product of (x) the number of shares of
Common Stock outstanding immediately before such Pro Rata Repurchase and (y) the
Market Price of the Common Stock as of the day immediately preceding the first
public announcement by the Company of the intent to effect such Pro Rata
Repurchase minus (ii) the aggregate purchase price of the Pro Rata Repurchase
(provided that such denominator shall never be less than $.01), and the
numerator of which shall be the product of (i) the number of shares of Common
Stock outstanding immediately before such Pro Rata Repurchase minus the number
of shares of Common Stock repurchased in such Pro Rata Repurchase and (ii) the
Market Price of the Common Stock as of the day immediately preceding the first
public announcement by the Company of the intent to effect such Pro Rata
Repurchase.
(d) Reorganization, etc. If at any time after the date of
-------------------
issuance of this Warrant any consolidation of the Company with or merger of the
Company with or into any other Person (other than a merger or consolidation in
which the Company is the surviving or continuing corporation and which does not
result in any reclassification of, or change (other than a change in par value
or from par value to no par value or from no par value to par value, or as a
result of a subdivision or combination) in, outstanding shares of Common Stock)
or any sale, lease or other transfer of all or substantially all of the assets
of the Company to any other person (each, a "Reorganization Event"), shall be
--------------------
effected in such a way that the holders of Common Stock shall be entitled to
receive cash, stock, other securities or assets (whether such cash, stock, other
securities or assets are issued or distributed by the Company or another Person)
with respect to or in exchange for Common Stock, then, upon exercise of this
Warrant the Warrantholder shall have the right to receive the kind and amount of
cash, stock, other securities or assets receivable upon such Reorganization
Event by a holder of the number of shares of Common Stock that such
Warrantholder would have been entitled to receive upon exercise of this Warrant
had this Warrant been exercised immediately before such Reorganization Event,
subject to adjustments that shall be as nearly equivalent as may be practicable
to the adjustments provided for in this Section 6.1. The Company shall not enter
into any of the
<PAGE>
7
transactions referred to in this Section 6.1(d) unless effective provision shall
be made so as to give effect to the provisions set forth in this Section 6.1(d).
(e) Fractional Shares. No fractional shares of Common
-----------------
Stock or scrip shall be issued to any Warrantholder in connection with the
exercise of this Warrant. Instead of any fractional shares of Common Stock that
would otherwise be issuable to such Warrantholder, the Company will pay to such
Warrantholder a cash adjustment (calculated to the nearest $.01) in respect of
such fractional interest in an amount equal to that fractional interest of the
then Market Price per share of Common Stock.
(f) Carryover. Notwithstanding any other provision of this
---------
Section 6.1, no adjustment shall be made to the number of shares of Common Stock
to be delivered to the Warrantholder (or to the Exercise Price) if such
adjustment represents less than .05% of the number of shares to be so delivered,
but any lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment that together with any
adjustments so carried forward shall amount to .05% or more of the number of
shares to be so delivered.
(g) Exercise Price Adjustment. Whenever the number of
-------------------------
Warrant Shares purchasable upon the exercise of the Warrant is adjusted as
provided pursuant to this Section 6.1, the Exercise Price per share payable upon
the exercise of this Warrant shall be adjusted by multiplying such Exercise
Price immediately prior to such adjustment by a fraction, of which the numerator
shall be the number of Warrant Shares purchasable upon the exercise of the
Warrant immediately prior to such adjustment, and of which the denominator shall
be the number of Warrant Shares purchasable immediately thereafter; provided,
--------
however, that the Exercise Price for each Warrant Share shall in no event be
- -------
less than the par value of such Warrant Share.
(h) Multiple Adjustments. If any action or transaction
--------------------
would require adjustment of the number of shares of Common Stock to be delivered
to the Warrantholder upon exercise of this Warrant pursuant to more than one
paragraph of this Section 6.1, only one adjustment shall be made and each such
adjustment shall be the amount of adjustment that has the highest absolute
value.
6.2 Notice of Adjustment. Whenever the number of Warrant Shares
--------------------
or the Exercise Price of such Warrant Shares is adjusted, as herein provided,
the Company shall promptly mail by first class mail, postage prepaid, to the
Warrantholder, notice of such adjustment or adjustments and a certificate of a
firm of independent public accountants of recognized national standing selected
by the Board of Directors of the Company (who shall be appointed at the
Company's expense and who may be the independent public accountants regularly
employed by the Company) setting forth the number of Warrant Shares and the
Exercise Price of such Warrant Shares after
<PAGE>
8
such adjustment, setting forth a brief statement of the facts requiring such
adjustment and setting forth the computation by which such adjustment was made.
7. Amendments. Any provision of this Warrant may be amended and the
----------
observance thereof waived only with the written consent of the Company and the
Warrantholder.
8. Notices of Corporate Action. So long as this Warrant has not been
---------------------------
exercised in full, in the event of:
(a) of a consolidation or merger to which the Company is a
party and for which approval of any stockholders of the Company is required; or
(b) of the voluntary or involuntary dissolution,
liquidation or winding up of the Company; or
(c) of the sale, exchange or other conveyance (for cash,
shares of stock, securities or other consideration) of all or substantially all
the property and assets of the Company except to a wholly-owned subsidiary; or
(d) of any Pro Rata Repurchase;
then, in each case, the Company shall cause to be mailed, first-class postage
prepaid, to the Warrantholder, not less than 20 days nor more than 60 days prior
to the applicable record date hereinafter specified, a notice stating (x) the
date on which a record is to be taken for the purpose of any distribution or
grant of rights or warrants triggering an adjustment to pursuant to Section 6.1,
or, if a record is not to be taken, the date as of which the holders of record
of Common Stock entitled to such distribution, rights or warrants are to be
determined, or (y) the date on which any reclassification, consolidation,
merger, sale, conveyance, dissolution, liquidation, winding up or Pro Rata
Repurchase is expected to become effective, if known, and the date as of which
it is expected that holders of Common Stock of record shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such reclassification, consolidation, merger, sale, conveyance, dissolution,
liquidation, winding up or Pro Rata Repurchase, if known. Failure to give the
notice specified hereunder shall have no effect on the status or effectiveness
of the action to which the required notice relates.
9. Registration Rights. The Warrantholder shall be entitled to
-------------------
registration rights with respect to this Warrant or the Warrant Shares issuable
upon exercise of this Warrant as set forth in the Investment Agreement.
10. Definitions.
-----------
<PAGE>
9
As used herein, unless the context otherwise requires, the following
terms have the following meanings:
"Business Day" means any day that is not a Saturday, a Sunday or a day
------------
on which banking institutions are not required to be open in New York City.
"Change of Control" means (i) the direct or indirect sale, lease,
-----------------
exchange or other transfer of all or substantially all of the assets of the
Company to any Person or group of Persons acting in concert as a partnership or
other group within the meaning of Rule 13d-5 under the Exchange Act (a "Group of
--------
Persons"), or (ii) the merger or consolidation of the Company with or into
- -------
another corporation with the effect that the then existing stockholders of the
Company hold less than 50% of the combined voting power of the then outstanding
securities of the surviving corporation of such merger or the corporation
resulting from such consolidation ordinarily (and apart from rights accruing
under special circumstances, including the happening of a contingency) having
the right to vote in the election of directors.
"Closing Date" has the meaning specified in the Investment Agreement.
------------
"Closing Price" of the Common Stock as of any day, means (i) the last
-------------
reported sale price of such stock (regular way) or, in case no such sale takes
place on such day, the average of the closing bid and asked prices, in either
case as reported on the principal national securities exchange on which the
Common Stock is listed or admitted to trading or (ii) if the Common Stock is not
listed or admitted to trading on any national securities exchange, the last
reported sale price or, in case no such sale takes place on such day, the
average of the highest reported bid and lowest reported asked quotation for the
Common Stock, in either case reported on the National Association of Securities
Dealers, Inc. Automated Quotation System ("NASDAQ"), or a similar service if
------
NASDAQ is no longer reporting such information.
"Common Stock" has the meaning specified on the cover of this Warrant.
------------
"Company" has the meaning specified on the cover of this Warrant.
-------
"Exercise Form" means an Exercise Form in the form annexed hereto as
-------------
Exhibit A.
"Expiration Date" has the meaning specified on the cover of this
---------------
Warrant.
<PAGE>
10
"Exercise Price" has the meaning specified on the cover of this
--------------
Warrant.
"Independent Financial Expert" means an independent nationally
----------------------------
recognized investment banking firm.
"Market Price" means, with respect to each share of Common Stock as of
------------
any date, the average of the daily Closing Prices per share of Common Stock for
the 30 consecutive Trading Days prior to such date; provided that, if on any
--------
such date the shares of Common Stock are not listed or admitted for trading on
any national securities exchange or quoted by NASDAQ or a similar service, the
Market Price for a share of Common Stock shall be the fair market value of such
share as determined in good faith by the Board of Directors of the Company. If
the Board of Directors is unable to determine the fair market value, or if the
holders of a majority in interest of the Warrants disagree with the Board's
determination of fair market value by written notice delivered to the Company
within five (5) Business Days after the Board's determination thereof is
communicated in writing to such holders, which notice specifies a majority-in-
interest of such holders' determination of fair market value, then the Company
and a majority-in-interest of such holders shall select an Independent Financial
Expert which shall determine such fair market value. If the Company and such
holders are unable to agree upon an Independent Financial Expert within fifteen
(15) days after the request by such holders, the Company, on the one hand, and
such holders, on the other, shall each select an Independent Financial Expert
within five (5) days following the expiration of such fifteen (15) day period,
and these two Independent Financial Experts shall select a third Independent
Financial Expert. The determination of fair market value by such Independent
Financial Expert shall be final, binding and conclusive on the Company and the
Warrantholder. All costs and fees of any Independent Financial Experts retained
in accordance with the foregoing shall be borne by the Company.
"Person" means any individual, firm, corporation, partnership, limited
------
liability company or partnership, trust, incorporated or unincorporated
association, joint venture, joint stock company, government (or an agency or
political subdivision thereof) or other entity of any kind, and shall include
any successor (by merger or otherwise) of such entity.
"Price Floor" has the meaning specified on the cover of this Warrant.
-----------
"Pro Rata Repurchase" means any purchase of shares of Common Stock by
-------------------
the Company or by any of its subsidiaries whether for cash, shares of capital
stock of the Company, other securities of the Company, evidences of indebtedness
of the Company or any other Person or any other property (including, without
limitation, shares of capital stock, other securities or evidences of
indebtedness of a subsidiary of the Company), or any combination thereof, which
purchase is subject to Section 13(e)
<PAGE>
11
of the Securities Exchange Act of 1934, as amended, or is made pursuant to an
offer made available to all holders of Common Stock.
"Securities Act" has the meaning specified on the cover of this
--------------
Warrant.
"Warrantholder" has the meaning specified on the cover of this
-------------
Warrant.
"Warrant Shares" has the meaning specified on the cover of this
--------------
Warrant.
11. Miscellaneous.
-------------
11.1 Entire Agreement. This Warrant together with the Investment
----------------
Agreement constitute the entire agreement between the Company and the
Warrantholder with respect to this Warrant.
11.2 Binding Effect; Benefits. This Warrant shall inure to the
------------------------
benefit of and shall be binding upon the Company and the Warrantholder and their
respective successors and assigns. Nothing in this Warrant, expressed or
implied, is intended to or shall confer on any person other than the Company and
the Warrantholder, or their respective successors or assigns, any rights,
remedies, obligations or liabilities under or by reason of this Warrant.
11.3 Section and Other Headings. The section and other headings
--------------------------
contained in this Warrant are for reference purposes only and shall not be
deemed to be a part of this Warrant or to affect the meaning or interpretation
of this Warrant.
11.4 Notices. All notices or other communications given or made
-------
hereunder shall be validly given or made if in writing and delivered by
facsimile transmission or in Person at, mailed by registered or certified mail,
return receipt requested, postage prepaid, or sent by a reputable overnight
courier to, the following addresses (and shall be deemed effective at the time
of receipt thereof).
If to the Company:
ViroPharma Incorporated
405 Eagleview Boulevard
Exton, PA 19341
Telecopy: (610) 458-7380
Attention: Thomas F. Doyle, Esq.
<PAGE>
12
with a copies to:
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, PA 19103-2921
Telecopy: (215) 963-5299
Attention: David R. King, Esq.
If to the Warrantholder:
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
Telecopy: (202) 463-6215
Attention: Christopher D. Earl, Ph.D.
and
Perseus Capital, LLC
the Army and Navy Club Building
1627 I Street, N.W., Suite 610
Washington D.C. 20006
Telecopy: (202) 463-6215
Attention: Kenneth M. Socha, Esq.
and
Soros Fund Management, LLC
888 Seventh Avenue
New York, New York 10106
Telecopy: (212) 262-6300
Attention: Michael C. Neus, Esq.
and
Soros Fund Management, LLC
888 Seventh Avenue
New York, New York 10106
Telecopy: (212) 262-6300
Attention: Neal Moszkowski
<PAGE>
13
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy: (212) 757-3990
Attention: Bruce A. Gutenplan, Esq.
or at such other address as a party hereto shall from time to time designate by
written notice, in the manner provided herein, to the other parties hereto.
Notice given in accordance with this Section shall be deemed given and received
as of the earlier of (i) actual receipt or (ii) first attempted delivery which
is refused (as opposed to being returned for insufficient postage/fee, improper
address or like cause). All references to days in this Agreement shall be deemed
to refer to calendar days, unless otherwise specified. If any notice, filing,
delivery or payment shall be required by the terms hereof to be made on a day
that is not a Business Day, such notice, filing, delivery or payment shall be
made on the immediately succeeding Business Day.
11.5 No Dilution or Impairment. The Company will not, by
-------------------------
amendment of its certificate or articles of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other action, avoid or seek to 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. Without limiting the
generality of the foregoing, the Company (i) will not increase the par value of
any shares of stock receivable on the exercise of this Warrant above the amount
payable therefor on such exercise, (ii) will, at all times, reserve and keep
available the maximum number of its authorized shares of Common Stock, free from
all preemptive rights therein, which will be sufficient to permit the full
exercise of this Warrant and (iii) will take all such action as may be necessary
or appropriate in order that all shares of Common Stock as may be issued
pursuant to the exercise of this Warrant will, upon issuance, be duly and
validly issued, fully paid and nonassessable, and free from all taxes, liens and
charges with respect to the issue thereof.
11.6 Charges, Taxes and Expenses. Issuance of certificates for
---------------------------
shares of Common Stock upon the exercise of this Warrant shall be made without
charge to the Warrantholder hereof for any issue or transfer tax, or other
incidental expense, in respect of the issuance or delivery of such certificates
or the securities represented thereby, all of which taxes and expenses shall be
paid by the Company; provided, however, that the Warrantholder shall be required
-------- -------
to pay any and all taxes that may be payable in respect of any transfer involved
in the issuance and delivery of any certificate in a name other than that of the
then Warrantholder as reflected upon the books of the Company.
<PAGE>
14
11.7 Severability. Any term or provision of this Warrant which
------------
is invalid or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the terms and provisions of this Warrant or
affecting the validity or enforceability of any of the terms or provisions of
this Warrant in any other jurisdiction.
11.8 Certain Remedies. The Warrantholder shall be entitled to
----------------
an injunction or injunctions to prevent breaches of the provisions of this
Warrant and to enforce specifically the terms and provisions of this Warrant in
any court of the United States or any court of any state having jurisdiction,
this being in addition to any other remedy to which the Warrantholder may be
entitled at law or in equity.
11.9 No Rights or Liabilities as Stockholder. Nothing contained
---------------------------------------
in this Warrant shall be deemed to confer upon the Warrantholder any rights as a
stockholder of the Company or as imposing any liabilities on the Warrantholder
to purchase any securities whether such liabilities are asserted by the Company
or by creditors or stockholders of the Company or otherwise.
11.10 Governing Law. The Company and, by acceptance of this
-------------
Warrant, the Warrantholder each hereby acknowledge and agree that the Warrant
granted hereby shall be governed by, and construed in accordance with, the
internal laws of the State of New York.
<PAGE>
15
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized officer.
VIROPHARMA INCORPORATED
By: /s/ Claude H. Nash
---------------------------------------------
Name: Claude H. Nash, Ph.D.
Title: President and Chief Executive Officer
Dated: May 5, 1999
AGREED AND ACKNOWLEDGED:
PERSEUS-SOROS BIOPHARMACEUTICAL FUND, LP
By: Perseus-Soros Partners, LLC,
General Partner
By: Perseus Management, LLC,
Member
By: /s/ Frank H. Pearl
----------------------------------------
Name: Frank H. Pearl
Title: President and Chairman:
Dated: May 5, 1999
[COMMON STOCK PURCHASE WARRANT SIGNATURE PAGE]
<PAGE>
16
EXHIBIT A
---------
EXERCISE FORM
-------------
(To be executed upon exercise of this Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant, to purchase __________ of the Warrant Shares and
[herewith tenders payment for such Warrant Shares to the order of ViroPharma
Incorporated in the amount of $__________] [hereby exercises its Conversion
Right] in accordance with the terms of this Warrant. The undersigned requests
that a certificate for [such Warrant Shares] [that number of Warrant Shares to
which the undersigned is entitled as calculated pursuant to Section 1.2] be
registered in the name of the undersigned and that such certificates be
delivered to the undersigned's address below.
Dated:__________________________
Signature____________________________
____________________________
(Print Name)
____________________________
(Street Address)
____________________________
(City) (State) (Zip Code)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 4,913,110
<SECURITIES> 9,978,310
<RECEIVABLES> 91,760
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,235,981
<PP&E> 3,293,019
<DEPRECIATION> 815,248
<TOTAL-ASSETS> 18,398,206
<CURRENT-LIABILITIES> 9,199,414
<BONDS> 0
0
0
<COMMON> 23,144
<OTHER-SE> 7,364,815
<TOTAL-LIABILITY-AND-EQUITY> 18,398,206
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,015,099
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,371
<INCOME-PRETAX> (5,664,627)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,664,627)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,664,627)
<EPS-PRIMARY> (.49)
<EPS-DILUTED> (.49)
</TABLE>
