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As filed with the Securities and Exchange Commission on May 26, 2000
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
_______________
FORM S-3
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
_______________
VIROPHARMA INCORPORATED
(Exact Name of Registrant as Specified in Charter)
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<S> <C> <C>
DELAWARE 2834 94-2347624
(State or other jurisdiction of (Primary standard industrial (IRS employer identification
incorporation or organization) classification code no.) number)
</TABLE>
405 Eagleview Boulevard
Exton, Pennsylvania 19341
(610) 458-7300
(address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
----------------
Thomas F. Doyle, Esquire
Vice President and General Counsel
ViroPharma Incorporated
405 Eagleview Boulevard
Exton, Pennsylvania 19341
(610) 458-7300
(name, address, including zip code, and telephone number, including area code,
of agent for service)
COPY TO:
Jeffery P. Libson, Esquire
Pepper Hamilton LLP
1235 Westlakes Drive, Suite 400
Berwyn, Pennsylvania 19312-2401
(610) 640-7800
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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<CAPTION>
Proposed Maximum Proposed Maximum
Title of Each Class Amount Offering Price Aggregate Amount of
of Securities to be Registered to be Registered Per Security Offering Price Registration Fee
- -------------------------------------- -------------------- ----------------- ---------------- --------------------
<S> <C> <C> <C> <C>
6% Convertible Subordinated Notes due $180,000,000 100% $180,000,000 $47,520
2007
Common Stock, $.002 par value (1) (1) (1) (2)
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(1) Includes 1,649,107 shares of common stock initially upon conversion of the
notes at the conversion price of $109.15 per share of common stock.
Pursuant to Rule 416 under the Securities Act, such number of shares of
common stock registered hereby shall include an indeterminate number of
shares of common stock that may be issued in connection with a stock split,
stock dividend, recapitalization or similar event.
(2) Pursuant to Rule 457(i), there is no additional filing fee with respect to
the shares of common stock issuable upon conversion of the notes because no
additional consideration will be received in connection with the exercise
of the conversion privilege.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
Subject to Completion, dated May 26, 2000
PROSPECTUS
VIROPHARMA INCORPORATED
$180,000,000
6% CONVERTIBLE SUBORDINATED NOTES DUE 2007 AND
THE COMMON STOCK ISSUABLE UPON CONVERSION OF THE NOTES
We issued the notes in a private placement in March 2000. This prospectus
will be used by selling securityholders to resell their notes and the common
stock issuable upon conversion of their notes.
The notes are convertible prior to maturity into common stock at an initial
conversion price of $109.15 per share, subject to adjustment in certain events.
We will pay interest on the notes on March 1 and September 1 of each year,
beginning on September 1, 2000. The notes will mature on March 1, 2007, unless
earlier converted or redeemed.
We may redeem all or a portion of the notes on or after March 6, 2003. In
addition, the holders may require us to repurchase the notes upon a fundamental
change prior to March 1, 2007.
We will not receive any proceeds from the sale by the selling
securityholders of the notes or the common stock issuable upon conversion of the
notes. Other than the selling commissions and fees and stock transfer taxes, we
will pay all expenses of the registration and sale of the notes and the common
stock.
The notes are currently designated for trading on the Private Offerings,
Resales and Trading through Automated Linkages, or PORTAL, Market. Our common
stock is listed on the Nasdaq National Market under the symbol "VPHM." On May
24, 2000 the reported last sale price of our common stock on the Nasdaq National
Market was $12.3125 per share.
_______________
INVESTING IN THE NOTES OR THE COMMON STOCK INTO WHICH THE NOTES ARE CONVERTIBLE
INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 5.
_______________
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
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TABLE OF CONTENTS
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Page
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Special Note Regarding Forward- Looking Statements...................... 2
Prospectus Summary...................................................... 3
Risk Factors............................................................ 5
Ratio of Earning to Fixed Charges....................................... 16
Use of Proceeds......................................................... 17
Dividend Policy......................................................... 17
Description of Notes.................................................... 18
Description of Capital Stock............................................ 27
Selling Securityholders................................................. 37
Plan of Distribution.................................................... 38
Legal Matters........................................................... 40
Experts................................................................. 40
Additional Information.................................................. 40
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You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell shares of common stock and
seeking offers to buy shares of common stock, only in jurisdictions where offers
and sales are permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus, regardless of the time of
delivery of this prospectus or of any sale of common stock.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements in the sections entitled "Summary," "Risk Factors,"
"Use of Proceeds," and elsewhere in this prospectus constitute forward-looking
statements. These statements involve known and unknown risks, uncertainties, and
other factors that may cause our or our industry's results, levels of activity,
performance, or achievements to be materially different from any future results,
levels of activity, performance, or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, those listed
under "Risk Factors" and elsewhere in this prospectus. In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"should," "intend," "expect," "plan," "anticipate," "believe," "estimate,"
"predict," "potential," or "continue" or the negative of such terms or other
comparable terminology.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, events, levels of
activity, performance, or achievements. We do not assume responsibility for the
accuracy and completeness of the forward-looking statements. We do not intend to
update any of the forward-looking statements after the date of this prospectus
to conform them to actual results.
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PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and the securities being sold in this offering
appearing elsewhere in this prospectus and our financial statements and notes
thereto incorporated by reference into this prospectus.
VIROPHARMA
We are a pharmaceutical company dedicated to the commercialization,
development and discovery of new antiviral medicines. We have focused our
current drug development and discovery activities on a number of ribonucleic
acid, or RNA, virus diseases, including:
. viral respiratory infection, or VRI;
. viral meningitis;
. hepatitis C; and
. respiratory syncytial virus diseases, or RSV diseases.
We are in human clinical trials with pleconaril for the treatment of
diseases caused by picornavirus infections, and with a product candidate for the
treatment of hepatitis C caused by hepatitis C virus infection in collaboration
with American Home Products Corporation. We have additional proprietary
compounds in research, preclinical and early clinical stages of development for
the treatment of hepatitis C and RSV diseases.
We believe that our drug discovery and development technologies and
expertise have potential applicability to a broad range of diseases caused by
RNA viruses. RNA viruses are responsible for the majority of human viral
diseases, causing illnesses ranging from acute and chronic ailments to fatal
infections.
Our executive offices and research facility are located at 405 Eagleview
Boulevard, Exton, PA 19341, and our telephone number is 610-458-7300.
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SUMMARY OF THE NOTES
Securities Offered $180,000,000 principal amount of 6% Convertible
Subordinated Notes due 2007.
Interest 6% per annum on the principal amount, payable semi-
annually in arrears in cash on March 1 and
September 1 of each year, beginning September 1,
2000.
Conversion Holders may convert all or any portion of a note
into common stock at any time on or before March 1,
2007 at a conversion price of $109.15 per share,
subject to adjustment if certain events affecting
our common stock occur. See "Description of Notes--
Conversion of Notes."
Subordination The notes will be subordinated to all of our
existing and future senior indebtedness. As of May
1, 2000, we had approximately $1.7 million of
senior indebtedness outstanding. We are not
prohibited from incurring debt, including senior
indebtedness, under the indenture.
Optional Redemption We may redeem some or all of the notes on or after
March 6, 2003, by giving holders at least 30 days'
notice. We may redeem the notes either in whole or
in part at the redemption prices set forth herein,
together with accrued and unpaid interest.
Fundamental Change If a fundamental change (as described under
"Description of Notes--Redemption at Option of the
Holder") occurs on or before March 1, 2007, holders
may require us to purchase all or part of their
notes at a redemption price equal to 100% of the
outstanding principal amount of the notes being
redeemed, plus accrued and unpaid interest.
Use of Proceeds We will not receive any of the proceeds from the
sale by any selling securityholder of the notes or
the underlying common stock.
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RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks described below are not the only ones facing our
company. Additional risks not presently known to us or that we currently deem
immaterial may also impair our business operations.
Our business, financial condition or results of operations could be
materially adversely affected by any of these risks. The trading price of the
notes and our common stock could decline due to any of these risks, and you may
lose all or part of your investment.
This prospectus also contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including the risks faced by us described below and elsewhere in this
prospectus.
Risks Related to Our Business
We depend heavily on the success of our lead product candidate, pleconaril,
which is still in clinical trials and may never be approved for commercial use.
If we are unable to commercialize pleconaril, our business and results of
operations will be harmed.
We have invested a significant portion of our time and financial resources
since our inception in the development of pleconaril and anticipate that for the
foreseeable future our ability to achieve profitability will be solely dependent
on its successful commercialization. We announced preliminary results from the
first Phase III clinical trial in VRI and the two Phase III clinical trials in
viral meningitis in April 2000. We are pursuing additional trials in VRI. In
addition, we may conduct an exploratory study in adult patients suffering from
viral meningitis in order to better understand the disease and to determine the
potential treatment benefit of pleconaril for those patients. We anticipate that
the exploratory study could take up to two years to complete. If we are unable
to successfully conclude our clinical development program, and obtain regulatory
approval, for pleconaril our stock price and results of operations would be
materially and adversely affected. Many factors could negatively affect the
success of our efforts to develop and commercialize pleconaril, including:
. significant delays in our clinical trials;
. significant increases in the costs of our clinical trials;
. negative, inconclusive or otherwise unfavorable results from our
clinical trials;
. an inability to obtain, or delay in obtaining, regulatory approval for
the commercialization of pleconaril;
. an inability to manufacture pleconaril in commercial quantities at
acceptable cost; and
. a failure to achieve market acceptance of pleconaril.
If we are unable to commercialize pleconaril, our business and results of
operations will be harmed.
We have incurred losses since inception and anticipate that we will incur
continued losses for the foreseeable future. We do not have a current source of
product revenue and may never be profitable.
We are a development stage company with no current source of product
revenue. We have incurred losses in each year since our inception in 1994. As of
March 31, 2000, we had an accumulated deficit of approximately $84.7 million. We
do not know when or if we will achieve product revenue. We expect to incur such
losses at an increasing rate over at least the next several years, primarily due
to expected increases in our research and
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development expenses, further clinical trials of our most advanced product
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 our agreement with Sanofi-Synthelabo for pleconaril.
Also, we expect to incur expenses related to our marketing and market research
activities for pleconaril, our development of a marketing and sales staff and
building of the requisite infrastructure, and further research and development
related to other product candidates. Our ability to achieve profitability is
dependent on a number of factors, including our ability to develop and obtain
regulatory approvals for our product candidates, successfully commercialize
those product candidates, which may include entering into collaborative
agreements for product development and commercialization, and secure contract
manufacturing and distribution and logistics services. We do not know when or if
we will complete our product development efforts, receive regulatory approval of
any of our product candidates or successfully commercialize any approved
products. As a result, we are unable to predict the extent of any future losses
or the time required to achieve profitability, if at all.
Our long term success depends upon our ability to develop additional drug
product candidates. If our drug discovery and development programs are not
successful, our business and results of operations will be harmed.
We are performing early clinical research on a product candidate for the
treatment of hepatitis C, and we are in preclinical research on product
candidates for the treatment of hepatitis C and RSV diseases. We also are
seeking to discover additional product candidates for the treatment of these and
other RNA virus diseases. Drug discovery and research for RNA virus diseases is
a new and challenging area. We cannot be certain that our efforts in this regard
will lead to commercially viable products. Moreover, we have not submitted
Investigational New Drug Applications, or INDs, for these products, which are
required before we can begin clinical trials on the products in the United
States. We are not sure that we will submit INDs for the treatment of hepatitis
C and RSV as planned, or whether FDA will permit us to proceed with clinical
trials. These product candidates are in the early stages of development, and we
may abandon further development efforts before the products reach clinical
trials. We do not know what the cost to manufacture these products in commercial
quantities will be, or the dose required to treat patients. We do not know
whether any of these early-stage development products ultimately will be shown
to be safe and effective. Moreover, governmental authorities may enact new
legislation or regulations that could limit or restrict our development efforts.
If we are unable to successfully discover new product candidates or develop our
early-stage product candidates, our business and results of operations will be
harmed.
None of our product candidates is approved for commercial use. If our product
candidates do not receive regulatory approval, or if we are unable to maintain
regulatory compliance, we will be limited in our ability to commercialize these
products, and our business and results of operations will be harmed.
We have not received regulatory approval to commercialize pleconaril or any
of our other product candidates. We will need to complete preclinical and
clinical testing of each of our product candidates before submitting marketing
applications. Negative, inconclusive or inconsistent clinical trial results
could prevent regulatory approval, increase the cost and timing of regulatory
approval or require additional studies or a filing for a narrower indication.
Beginning December 1, 2000, a New Drug Application must contain sufficient data
to determine whether the drug is safe and effective for the claimed indications
in all relevant pediatric subpopulations, and to support dosing and
administration for children. Under certain circumstances FDA can waive this
requirement, or defer it until after the approval of the drug for use in adults.
FDA has stated that while it does not intend, except in rare circumstances, to
disapprove or withdraw approval of an NDA that does not contain appropriate
pediatric data, FDA has the authority to do so. As a result, in the absence of a
waiver, our failure to obtain adequate data could adversely affect our chances
of receiving regulatory approval, or could result in regulatory or legal
enforcement actions. Additionally, if we are able to collect appropriate data,
but this process is delayed, and if we are unable to receive a deferral of the
pediatric data requirement, the submission or approval of our NDA for adult
indications could be delayed.
The development of any of our product candidates is subject to many risks,
including the risk that:
. the product candidate is found to be ineffective or unsafe;
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. the clinical test results for a product candidate delay or prevent
regulatory approval;
. the product candidate cannot be developed into a commercially viable
product;
. the product candidate is difficult to manufacture;
. the product candidate later is discovered to cause adverse effects that
prevent widespread use, require withdrawal from the market, or serve as
the basis for product liability claims;
. third party competitors hold proprietary rights that preclude us from
marketing the product; and
. third party competitors market a more clinically effective or more cost-
effective product.
Even if we believe that clinical data demonstrate the safety and efficacy
of our product, regulators may disagree with us, which could delay, limit or
prevent the approval of our product candidates. As a result, we may not obtain
the labeling claims we believe are necessary or desirable for the promotion of
those products. In addition, regulatory approval may take longer than we expect
as a result of a number of factors, including failure to qualify for priority
review of our application. For example, the regulatory approval process may
delay the launch of pleconaril for the treatment of viral respiratory infection
beyond the year 2002. All statutes and regulations governing the approval of our
product candidates are subject to change in the future. These changes may
increase the time or cost of regulatory approval, limit approval, or prevent it
completely.
Even if we receive regulatory approval for our product candidates, the
later discovery of previously unknown problems with a product, manufacturer or
facility may result in restrictions, including withdrawal of the product from
the market. Approval of a product candidate may be conditioned upon certain
limitations and restrictions as to the drug's use, or upon the conduct of
further studies, and may be subject to continuous review. After approval of a
product, we will have significant ongoing regulatory compliance obligations, and
if we fail to comply with these requirements, we could be subject to penalties,
including:
. warning letters;
. fines;
. product recalls;
. withdrawal of regulatory approval;
. operating restrictions;
. injunctions; and
. criminal prosecution.
If we are unable to commercialize our products as anticipated, our business
and results of operations will be harmed. Our license with Sanofi-Synthelabo
makes Sanofi-Synthelabo responsible for seeking regulatory approval for and
marketing pleconaril outside the United States and Canada. If Sanofi-Synthelabo
fails to diligently and successfully pursue these activities, our business and
results of operations will be harmed.
We will need to conduct clinical studies of all of our product candidates. These
studies are costly, time consuming and unpredictable. Any unanticipated costs or
delays in our clinical studies could harm our business, financial condition and
results of operations.
Our lead candidate, pleconaril, is in a Phase III clinical trial program
for treatment of VRI. In addition, we may conduct an exploratory study with
pleconaril in adult patients suffering from viral meningitis in order to better
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understand the disease and to determine the potential treatment benefit of
pleconaril for these patients. Our product candidate for the treatment of
hepatitis C is in Phase I clinical trials and our product candidate for the
treatment of RSV disease is in preclinical development. We must complete
significant research and development, laboratory testing, and clinical testing
on these product candidates before we submit marketing applications in the
United States and abroad. These studies and trials can be very costly and time-
consuming. In addition, we rely on third party contract research organizations
to perform significant aspects of our studies and clinical trials, introducing
additional sources of risk into our program.
The rate of completion of clinical trials depends upon many factors,
including the rate of enrollment of patients. The acute nature of our disease
targets, the fact that some of these diseases have peak incidence rates during
certain times of the year, and the difficulties in anticipating where disease
outbreaks will occur, may affect patient enrollment in our clinical trials. If
we are unable to accrue sufficient clinical patients during the appropriate
period, we may need to delay our clinical trials and incur significant
additional costs. In addition, the FDA or Institutional Review Boards may
require us to delay, restrict, or discontinue our clinical trials on various
grounds, including a finding that the subjects or patients are being exposed to
an unacceptable health risk. Even if we complete our Phase III clinical trials,
we may desire or be required to conduct additional clinical trials of pleconaril
prior to commercialization. In addition, we may be unable to submit a New Drug
Application to the FDA within the timeframe we currently expect. If submitted, a
New Drug Application would require FDA approval before we could commercialize
the product described in the application.
The cost of human clinical trials varies dramatically based on a number of
factors, including:
. the order and timing of clinical indications pursued;
. the extent of development and financial support from corporate
collaborators;
. the number of patients required for enrollment;
. the difficulty of obtaining clinical supplies of the product candidate;
and
. the difficulty in obtaining sufficient patient populations and
clinicians.
All statutes and regulations governing the conduct of clinical trials are
subject to change in the future, which could affect the cost of our clinical
trials. Any unanticipated costs or delays in our clinical studies could harm our
business, financial condition and results of operations.
Even if we obtain positive preclinical or clinical trial results initially,
future clinical trial results may not be similarly positive. As a result,
ongoing and contemplated clinical testing, if permitted by governmental
authorities, may not demonstrate that a product candidate is safe and effective
in the patient population and for the disease indications for which we believe
it will be commercially advantageous to market the product. The failure of our
clinical trials to demonstrate the safety and efficacy of our desired
indications could harm our business, financial condition and results of
operations.
We do not have any marketing or sales experience and will need to develop
marketing and sales capabilities to successfully commercialize our product
candidates. If we are unable to do so, our business and results of operations
will be harmed.
We currently are developing a marketing staff and do not have a sales
staff. We will need staffs both to successfully commercialize any of our product
candidates, including pleconaril. The development of a marketing and sales
capability will require significant expenditures, management resources and time.
We may be unable to build such a sales force, the cost of establishing such a
sales force may exceed any product revenues, or our marketing and sales efforts
may be unsuccessful. We may not be able to find a suitable sales and marketing
partner for VRI. If we are unable to successfully establish a sales and
marketing capability in a timely manner or find suitable sales and marketing
partners, our business and results of operations will be harmed. Even if we are
able to
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develop a sales force or find a suitable marketing partner, we may not
successfully penetrate the markets for any of our proposed products.
We currently depend and will in the future depend on third parties to
manufacture our products and product candidates, including pleconaril. If these
manufacturers fail to meet our requirements and the requirements of regulatory
authorities, our business, financial condition and results of operations will be
harmed.
We do not have the internal capability to manufacture commercial quantities
of pharmaceutical products under the FDA's current Good Manufacturing Practices.
We entered into agreements with SELOC France for the manufacture of pleconaril
bulk drug substance and the development of a process for commercial scale
production of pleconaril. In addition, SELOC France will assist us in the
preparation of certain documentation that will be required in connection with
our New Drug Application for pleconaril. We also have entered into agreements
with Patheon, Inc. for the manufacture of oral liquid and solid formulations of
pleconaril drug product. Other than the production of validation batches, these
manufacturers have not delivered commercial quantities of pleconaril bulk drug
substance or drug product to us yet, and we cannot be certain that they will be
able to deliver commercial quantities of pleconaril bulk drug substance or drug
product on a timely basis. If SELOC France or Patheon, Inc. is unable to satisfy
our requirements and we are required to find an additional or alternative source
of supply, there may be additional cost and delay in product development and
commercialization of pleconaril.
We are also evaluating manufacturing alternatives for the commercial
manufacture of drug substance and drug product. The FDA requires pre-approval
inspection for all commercial manufacturing sites. We may not be able to
identify and qualify alternative manufacturers on a timely basis, if at all.
We have used either an oral liquid or an oral solid formulation of
pleconaril in our clinical trials completed to date. The oral solid formulation
will be used in our Phase III clinical trials of pleconaril for the treatment of
VRI. We have also developed suspension and intranasal formulations of
pleconaril. A delay in manufacturing validation batches, or a failure to
negotiate agreements with manufacturers, will delay product development and
commercialization and could harm our business, financial condition and results
of operations. The chemical stability of the oral solid formulation must be
tested. We also may need to demonstrate that the oral solid formulation is
bioequivalent to the oral liquid formulation. A delay in the required stability
testing or in manufacturing validation batches, or a failure to demonstrate
chemical stability or any required bioequivalence will prevent or delay the
commercialization of the oral solid formulation of pleconaril. The suspension
and intranasal formulations of pleconaril have not been used in any of our
clinical trials to date.
Any contract manufacturers that we may use must adhere to the FDA's
regulations on current Good Manufacturing Practices, which are enforced by the
FDA through its facilities inspection program. These facilities must pass a
plant inspection before the FDA will issue a pre-market approval of the product.
The manufacture of product at these facilities will be subject to strict quality
control, testing and recordkeeping requirements. Moreover, while we may choose
to manufacture products in the future, we have no experience in the manufacture
of pharmaceutical products for clinical trials or commercial purposes. If we
decide to manufacture products, we would be subject to the regulatory
requirements described above. In addition, we would require substantial
additional capital and would be subject to delays or difficulties encountered in
manufacturing pharmaceutical products. No matter who manufacturers the product,
we will be subject to continuing obligations regarding the submission of safety
reports and other post-market information.
If we encounter delays or difficulties with contract manufacturers,
packagers or distributors, market introduction and subsequent sales of our
products could be delayed. In addition, we may need to seek alternative sources
of supply. If so, we may incur additional costs or delays in product
commercialization. If we change the source or location of supply or modify the
manufacturing process, regulatory authorities will require us to demonstrate
that the product produced by the new source or from the modified process is
equivalent to the product used in any clinical trials that we had conducted.
We may not be able to enter into alternative supply arrangements at
commercially acceptable rates, if at all. Moreover, the manufacturers utilized
by us may not provide quantities of product sufficient to meet our
specifications or our delivery, cost and other requirements.
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We license patented technology and other proprietary rights from Sanofi-
Synthelabo, including rights to pleconaril. If Sanofi-Synthelabo does not
protect our rights under our license agreement with it or does not reasonably
consent to our sublicense of rights to pleconaril, or if this license agreement
is terminated, our business and results of operations would be harmed.
We have licensed from Sanofi-Synthelabo the exclusive United States and
Canadian rights to antiviral agents for use in enterovirus and rhinovirus
indications, which are the subject of two issued United States patents and two
related Canadian patent applications owned by Sanofi-Synthelabo that cover both
pleconaril and technology used to manufacture pleconaril. We depend on Sanofi-
Synthelabo to prosecute such patent applications and protect such patent rights.
Failure by Sanofi-Synthelabo to prosecute such applications and protect such
patent rights could harm our business. Our ability to sublicense our rights
under this license agreement are subject to Sanofi-Synthelabo's consent, which
is not to be unreasonably withheld. Under our license agreement, Sanofi-
Synthelabo also has exclusive rights to market and sell products covered by
these patents and patent applications in countries other than the United States
and Canada, although we would receive royalties from Sanofi-Synthelabo on such
sales. In connection with these rights, Sanofi-Synthelabo may require us to pay
for clinical trials required for products to receive regulatory approval in the
European Union if significant additional testing is required. If Sanofi-
Synthelabo does not successfully market and sell products outside of the United
States and Canada, our business and future results of operations may be harmed.
If our license agreement with Sanofi-Synthelabo is terminated, our business and
results of operations would be harmed.
We depend on collaborations with third parties, which may reduce our product
revenues or restrict our ability to commercialize products.
We have entered into, and may in the future enter into, sales and
marketing, distribution, manufacturing, development, licensing and other
strategic arrangements with third parties. For example, in December 1999, we
entered into an agreement with American Home Products Corporation to develop
jointly products for use in treating the effects of hepatitis C virus in humans.
Under this Agreement, we licensed to them worldwide rights under patents and
know-how owned by us or created under the agreement. In November 1999, we
entered into a product development and commercialization agreement with Battelle
Memorial Institute in connection with our RSV program. We are currently engaged
in additional discussions relating to other arrangements. We cannot be sure that
we will be able to enter into any such arrangements with third parties on terms
acceptable to us or at all. Third party arrangements may require us to grant
certain rights to third parties, including exclusive marketing rights to one or
more products, or may have other terms that are burdensome to us, and may
involve the acquisition of our equity securities.
Our ultimate success may depend upon the success of our collaborators. We
have obtained, and intend to obtain in the future, licensed rights to certain
proprietary technologies and compounds from other entities, individuals and
research institutions, for which we may be obligated to pay license fees, make
milestone payments and pay royalties. We may be unable to enter into
collaborative licensing or other arrangements that we need to develop and
commercialize our drug candidates. Moreover, we may not realize the contemplated
benefits from such collaborative licensing or other arrangements. These
arrangements may place responsibility on our collaborative partners for
preclinical testing, human clinical trials, the preparation and submission of
applications for regulatory approval, or for marketing, sales and distribution
support for product commercialization. We cannot be certain that any of these
parties will fulfill their obligations in a manner consistent with our best
interests. These arrangements may also require us to transfer certain material
rights or issue our equity securities to corporate partners, licensees and
others. Any license or sublicense of our commercial rights may reduce our
product revenue. Moreover, we may not derive any revenues or profits from these
arrangements. In addition, our current strategic arrangements may not continue
and we may be unable to enter into future collaborations. Collaborators may also
pursue alternative technologies or drug candidates, either on their own or in
collaboration with others, that are in direct competition with us.
We depend on patents and proprietary rights, which may offer only limited
protection against potential infringement. If we are unable to protect our
patents and proprietary rights, our business, financial condition and results of
operations will be harmed.
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The pharmaceutical industry places considerable importance on obtaining
patent and trade secret protection for new technologies, products and processes.
Our success depends, in part, on our ability to develop and maintain a strong
patent position for our products and technologies both in the United States and
in other countries. Litigation or other legal proceedings may be necessary to
defend against claims of infringement, to enforce our patents, or to protect our
trade secrets, and could result in substantial cost to us and diversion of our
efforts. We intend to file applications as appropriate for patents covering the
composition of matter of our drug candidates, the proprietary processes for
producing such compositions, and the uses of our drug candidates.
We also rely on trade secrets, know-how and continuing technological
advancements to protect our proprietary technology. We have entered into
confidentiality agreements with our employees, consultants, advisors and
collaborators. However, these parties may not honor these agreements and we may
not be able to successfully protect our rights to unpatented trade secrets and
know-how. Others may independently develop substantially equivalent proprietary
information and techniques or otherwise gain access to our trade secrets and
know-how.
Many of our scientific and management personnel were previously employed by
competing companies. As a result, such companies may allege trade secret
violations and similar claims against us.
To facilitate development of our proprietary technology base, we may need
to obtain licenses to patents or other proprietary rights from other parties. If
we are unable to obtain such licenses, our product development efforts may be
delayed.
We may collaborate with universities and governmental research
organizations which, as a result, may acquire certain rights to any inventions
or technical information derived from such collaboration.
We may incur substantial costs in asserting any patent rights and in
defending suits against us related to intellectual property rights. Such
disputes could substantially delay our product development or commercialization
activities. The United States Patent and Trademark Office or a private party
could institute an interference proceeding relating to our patents or patent
applications. An opposition or revocation proceeding could be instituted in the
patent offices of foreign jurisdictions. An adverse decision in any such
proceeding could result in the loss of our rights to a patent or invention.
Any of our future products, including pleconaril, may not be accepted by the
market, which would harm our business and results of operations.
Even if approved by the FDA and other regulatory authorities, our product
candidates may not achieve market acceptance and we may not receive revenues
from these products as anticipated. The degree of market acceptance will depend
upon a number of factors, including:
. the receipt and timing of regulatory approvals;
. the availability of third-party reimbursement; and
. the establishment and demonstration in the medical community of the
clinical safety, efficacy and cost-effectiveness of drug candidates, as
well as their advantages over existing technologies and therapeutics.
We may not be able to successfully manufacture and market our products even
if they perform successfully in clinical trials. Furthermore, physicians or the
medical community in general may not accept and utilize any of our products.
We may not receive third party reimbursement for any of our future products,
which may harm our results of operations.
Our future revenues, profitability and access to capital will be affected
by the continuing efforts of governmental and private third-party payors to
contain or reduce the costs of health care through various means. We expect a
number of federal, state and foreign proposals to control the cost of drugs
through governmental regulation. We are unsure of the form that any health care
reform legislation may take or what actions federal, state, foreign,
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and private payors may take in response to the proposed reforms. Therefore, we
cannot predict the effect of any implemented reform on our business.
Our ability to commercialize our products successfully will depend, in
part, on the extent to which reimbursement for the cost of such products and
related treatments will be available from government health administration
authorities, such as Medicare and Medicaid in the United States, private health
insurers and other organizations. Significant uncertainty exists as to the
reimbursement status of newly approved health care products, particularly for
indications for which there is no current effective treatment or for which
medical care typically is not sought. Adequate third-party coverage may not be
available to enable us to maintain price levels sufficient to realize an
appropriate return on our investment in product research and development. If
adequate coverage and reimbursement levels are not provided by government and
third-party payors for use of our products, our products may fail to achieve
market acceptance and our results of operations will be harmed.
We need substantial additional funding and may not have access to capital. If we
are unable to raise capital when needed, we may need to delay, reduce or
eliminate research and development programs or our commercialization efforts,
which would harm our business.
We will need to raise substantial additional funds to continue our business
activities. We have incurred losses from operations since inception and we
expect to incur additional operating losses at an increasing rate over at least
the next several years. We expect this increase to result from further research
and development activities, further clinical trials, development of marketing
and sales capabilities and building of the requisite infrastructure, and
milestone payments related to pleconaril and our other product candidates. We
believe that we will require additional capital in 2003. However, our actual
capital requirements will depend upon numerous factors, including:
. the development of commercialization activities and arrangements;
. the progress of our research and development programs;
. the progress of preclinical and clinical testing;
. the time and cost involved in obtaining regulatory approvals;
. the cost of filing, prosecuting, defending and enforcing any patent
claims and other intellectual property rights;
. the effect of competing technological and market developments;
. the effect of changes and developments in our existing collaborative,
licensing and other relationships; and
. the terms of any new collaborative, licensing and other arrangements
that we may establish.
We may be unable to raise sufficient funds to complete our development,
marketing and sales activities for pleconaril or any of our other product
candidates. Potential funding sources include:
. public and private securities offerings;
. debt financing, such as bank loans; and
. collaborative, licensing and other arrangements with third parties.
We may not be able to find sufficient debt or equity funding on acceptable
terms. If we cannot, we may need to delay, reduce or eliminate research and
development programs. The sale by us of additional equity securities or the
expectation that we will sell additional equity securities may have an adverse
effect on the price of our common stock. In addition, collaborative arrangements
may require us to grant product development programs or licenses to third
parties for products that we might otherwise seek to develop or commercialize
ourselves.
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We face intense competition, which could harm our business and results of
operations.
There are many entities, both public and private, including well-known,
large pharmaceutical companies, chemical companies, biotechnology companies and
research institutions, engaged in developing pharmaceuticals for applications
similar to those targeted by us. Developments by these or other entities may
render our products under development non-competitive or obsolete. Many of these
companies have substantially greater resources and experience than we have.
Accordingly, our competitors may succeed in obtaining regulatory approval for
products more rapidly and more effectively than we do. Competitors may succeed
in developing products that are more effective and less costly than any that may
be developed by us and also may prove to be more successful in the manufacture
and marketing of products.
We may not be able to keep pace with technological changes in the
biopharmaceutical industry, which may prevent us from commercializing our
product candidates.
Our business is characterized by extensive research efforts and rapid
technological progress. New developments in molecular biology, medicinal
chemistry and other fields of biology and chemistry are expected to continue at
a rapid pace in both industry and academia. Research and discoveries by others
may render some or all of our programs or drug candidates non-competitive or
obsolete.
Our business strategy is based, in part, upon the application of our
technology platform to discover and develop pharmaceutical products for the
treatment of infectious human diseases. This strategy is subject to the risks
inherent in the development of new products using new and emerging technologies
and approaches. There are no approved drugs on the market for the treatment of
certain of the disease indications being targeted by us.
Unforeseen problems may develop with our technologies or applications. We
may not be able to successfully address technological challenges that we
encounter in our research and development programs and may not ultimately
develop commercially feasible products.
We depend on key personnel and may not be able to retain these employees or
recruit additional qualified personnel, which would harm our business.
Because of the specialized scientific nature of our business, we are highly
dependent upon qualified scientific, technical and managerial personnel. Our
anticipated growth and expansion into new areas and activities will require
additional expertise and the addition of new qualified personnel. For example,
we intend to recruit sales and marketing personnel to support the
commercialization of pleconaril. We will face intense competition in recruiting
these persons. We may not be able to attract and retain qualified personnel to
develop our sales and marketing forces. There is intense competition for
qualified personnel in the pharmaceutical field. Therefore, we may not be able
to attract and retain the qualified personnel necessary for the development of
our business. Furthermore, we have not entered into non-competition agreements
with our key employees. The loss of the services of existing personnel, as well
as the failure to recruit additional key scientific, technical and managerial
personnel in a timely manner would harm our research and development programs
and our business. We do not maintain key man life insurance on any of our
employees.
We may be subject to product liability claims, which may harm our business,
financial condition and results of operations regardless of the outcome.
The administration of drugs to humans, whether in clinical trials or after
marketing clearance is obtained, can result in product liability claims. Product
liability claims can be expensive, difficult to defend and may result in large
judgments or settlements against us. In addition, third party collaborators and
licensees may not protect us from product liability claims. Although we maintain
product liability insurance, claims could exceed the coverage obtained. A
successful product liability claim in excess of our insurance coverage could
harm our business, financial condition and results of operations. In addition,
any successful claim may prevent us from obtaining adequate product liability
insurance in the future on commercially desirable terms. Even if a claim is not
successful, defending such a claim may be time-consuming and expensive.
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The rights that have been and may in the future be granted to holders of our
common or preferred stock may adversely affect the rights of other stockholders
and may discourage a takeover.
Pursuant to our certificate of incorporation, our board of directors has
the authority, without further action by the holders of our common stock, to
issue 5,000,000 shares of preferred stock from time to time in such series and
with such preferences and rights as it may designate. As of April 30, 2000, we
have issued 2,300,000 shares of series A convertible participating preferred
stock and we have reserved for issuance 200,000 shares of series A junior
participating preferred stock. Thus, we may issue an additional 2,500,000 shares
of preferred stock. The preferences and rights of any such additional preferred
stock may be superior to those of the holders of our common stock. For example,
the holders of preferred stock may be given a preference in payment upon our
liquidation, or for the payment or accumulation of dividends before any
distributions are made to the holders of our common stock.
Holders of the preferred stock have liquidation rights equal to their
original investment, subject to adjustment. Such holders also have preemptive
rights with respect to proposed private placements of our common stock or other
equity securities for cash, other than issuances under our equity compensation
or stock option plans and issuances pursuant to our stockholder rights plan, at
a price below $6.20 per share (with adjustment for any stock dividend, stock
split or other subdivision of stock, or any combination or reclassification of
stock).
In September 1998, our board of directors adopted a plan that grants each
holder of our common stock the right to purchase shares of our series A junior
participating preferred stock. This plan is designed to help insure that all our
stockholders receive fair value for their shares of common stock in the event of
a proposed takeover of ViroPharma, and to guard against the use of partial
tender offers or other coercive tactics to gain control of ViroPharma without
offering fair value to the holders of our common stock. The plan is likely to
discourage a merger or tender offer involving our securities that is not
approved by our board of directors by increasing the cost of effecting any such
transaction and, accordingly, could have an adverse impact on holders of our
stock who might want to vote in favor of such a merger or participate in such a
tender offer.
While we have no present intention to authorize or issue any additional
series of preferred stock, any such authorization or issuance, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could also have the effect of making it more difficult for a
third party to acquire a majority of our outstanding voting stock. The preferred
stock may have other rights, including economic rights senior to those of our
common stock, and, as a result, an issuance of additional preferred stock could
adversely affect the market value of the notes or our common stock.
The exercise of outstanding registration rights held by holders of our common
and preferred stock may have an adverse effect on the market price for the notes
or our common stock and may impair our ability to raise additional funds.
As of April 30, 2000, holders of 791,315 shares of our common stock have
both piggyback and demand registration rights. In addition, our founders have
piggyback registration rights with respect to 840,450 shares of our common stock
and the holders of shares of our series A convertible participating preferred
stock that are convertible into 2,346,295 shares of our common stock and of
warrants to purchase 595,000 shares of our common stock, have demand
registration rights. Absent any contractual restrictions, the holders of demand
registration rights can exercise such rights at any time. By exercising such
registration rights, subject to some limitations, the holders of such rights
could cause a significant number of shares of our common stock to be registered
and sold in the public market. Such sales, or the perception that these sales
could occur, may have an adverse effect on the market price for our common stock
and could impair our ability to raise capital through an offering of equity
securities. We have obtained waivers of substantially all piggyback registration
rights applicable to this offering.
The notes are unsecured and subordinated.
The notes are unsecured and subordinated in right of payment to all of our
existing and future senior indebtedness. In the event of our bankruptcy,
liquidation or reorganization or upon acceleration of the notes due to an event
of default under the indenture and in certain other events, our assets will be
available to pay obligations on the notes only after all senior indebtedness has
been paid. As a result, there may not be sufficient assets remaining to pay
amounts due on any or all of the outstanding notes. We are not prohibited from
incurring debt, including senior
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indebtedness, under the indenture. If we were to incur additional debt or
liabilities, our ability to pay our obligations on the notes could be adversely
affected. As of May 1, 2000, we had approximately $1.7 million of senior
indebtedness outstanding. See "Description of Notes-Subordination of Notes."
We may be unable to redeem the notes upon a fundamental change.
We may be unable to redeem the notes in the event of a fundamental change.
Upon a fundamental change, holders of the notes may require us to redeem all or
a portion of the notes. If a fundamental change were to occur, we may not have
enough funds to pay the redemption price for all tendered notes. In addition, in
certain situations, a fundamental change could result in an event of default
under our current forms of indebtedness. Any future credit agreements or other
agreements relating to our indebtedness may contain similar provisions, or
expressly prohibit the repurchase of the notes upon a fundamental change or may
provide that a fundamental change constitutes an event of default under that
agreement. If a fundamental change occurs at a time when we are prohibited from
purchasing or redeeming notes, we could seek the consent of our lenders to
redeem the notes or could attempt to refinance this debt. If we do not obtain a
consent, we could not purchase or redeem the notes. Our failure to redeem
tendered notes would constitute an event of default under the indenture, which
might constitute a default under the terms of our other indebtedness. In such
circumstances, or if a fundamental change would constitute an event of default
under our senior indebtedness, the subordination provisions of the indenture
would restrict payments to the holders of notes. The term "fundamental change"
is limited to certain specified transactions and may not include other events
that might adversely affect our financial condition or the market value of the
notes or our common stock. Our obligation to offer to redeem the notes upon a
fundamental change would not necessarily afford holders of the notes protection
in the event of a highly leveraged transaction, reorganization, merger or
similar transaction involving us. See "Description of Notes-Redemption at Option
of the Holder."
A public market may not develop for the notes.
The initial purchasers in the initial private placement have advised us
that they intend to make a market in the notes. However, the initial purchasers
are not obligated to make a market in the notes and may discontinue this market
making activity at any time without notice. In addition, market making activity
by the initial purchasers will be subject to the limits imposed by the
Securities Act and the Exchange Act. As a result, we cannot assure you that any
market for the notes will develop or, if one does develop, that it will be
maintained. If an active market for the notes fails to develop or be sustained,
the trading price of the notes could be materially adversely affected.
Our stock price and trading price of our notes may continue to experience short-
term fluctuations.
The market prices of securities of small capitalization biotechnology
companies, including ours, have historically been highly volatile. The market
has from time to time experienced significant price and volume fluctuations
unrelated to the operating performance of particular companies. In recent years,
the price of our common stock has fluctuated greatly. Fluctuations in the
trading price of our common stock will affect the trading price of the notes.
The market price of our common stock may continue to fluctuate significantly in
the future due to a variety of factors, including:
. results of our future clinical trials of pleconaril;
. the results of other preclinical testing and clinical trials by us or
our competitors;
. technological innovations or new therapeutic products;
. governmental regulations;
. developments in patent or other proprietary rights;
. litigation;
. public concern as to the safety of products developed by us or others;
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. comments by securities analysts; and
. general market conditions in our industry.
In addition, if any of the risks described in these "Risk Factors" actually
occurred, it could have a dramatic and adverse impact on the market price of our
common stock.
We have significant indebtedness and we may not be able to meet our obligations.
We are highly leveraged and have significant debt service requirements. In
March 2000, we issued $180,000,000 of convertible subordinated notes due in
March 2007. Our interest expense will increase significantly during the term
that the convertible notes are outstanding. This increased indebtedness will
impact us by significantly increasing our interest expense and related debt
service costs, and making it more difficult to obtain additional financing.
Currently, we are not generating sufficient cash flow from operations to satisfy
the annual debt service payments that are required as a result of the issuance
of the convertible notes. This may require us to use a portion of the proceeds
of this offering to pay interest or borrow additional funds or sell additional
equity to meet our debt service obligations. If we are unable to satisfy our
debt service requirements, substantial liquidity problems could result, which
would negatively impact our future prospects.
Our ability to meet our debt service obligations and to reduce our total
indebtedness depends on our future operating performance and on economic,
financial, competitive, regulatory and other factors affecting our operations.
Many of these factors are beyond our control and our future operating
performance could be adversely affected by some or all of these factors. We
historically have been unable to generate sufficient cash flow from operations
to meet our operating needs and have relied on equity, debt and capital lease
financings to fund our operations.
RATIO OF EARNINGS TO FIXED CHARGES
Earnings were insufficient to cover fixed charges by approximately the
following amounts for the periods ended as set forth below:
<TABLE>
<CAPTION>
Quarter Ended Fiscal Year Ended December 31
March 31, 2000 1999 1998 1997 1996 1995
----------------- ---- ----- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Deficiency of
earnings to cover
fixed charges $6,952,000 $34,575,000 $26,402,000 $11,450,000 $7,992,000 $3,874,000
</TABLE>
"Fixed charges" consists of:
. interest expense plus the portion of rent expense under operating leases
deemed by us to be representative of the interest factor, and
. amortization of debt issuance costs.
ViroPharma would have had to generate additional earnings of approximately
$6,952,000 for the three-month period ended March 31, 2000 to achieve an
earnings to fixed charges ratio of 1:1.
USE OF PROCEEDS
All of the notes and the underlying common stock issuable upon
conversion of the notes are being sold by the selling securityholders or by
their pledgees, donees, transferors or other successors in interest. We will not
receive any proceeds from the sale by any selling securityholder of the notes or
the underlying common stock.
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DIVIDEND POLICY
There is a 5% annual dividend, payable quarterly, associated with our
series A convertible participating preferred stock. We may choose to permanently
defer any quarterly payment, in which case the amount of payment is added to the
liquidation value and increases the conversion ratio of the preferred stock into
common stock. Alternatively, we may choose to pay the dividend in cash. In March
2000, we paid a cash dividend for the quarter ended March 31, 2000 of $181,838
on our series A convertible participating preferred stock. Any future
determination to pay dividends will be at the discretion of our board of
directors and will be dependent on then existing conditions, including our
financial condition, results of operations, contractual restrictions, capital
requirements, business and other factors our board of directors deems relevant.
In addition, our business loan agreements restrict our ability to declare and
pay cash dividends. We are obligated to pay any cash dividends paid to common
stockholders to the holders of our series A convertible participating preferred
stock on an as converted basis.
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DESCRIPTION OF NOTES
The notes were issued under an indenture dated as of March 1, 2000, between
ViroPharma and Summit Bank, as trustee. The notes are covered by a registration
rights agreement. Copies of the indenture and registration rights agreement were
filed with the Securities and Exchange Commission as an exhibit to our Form 10-Q
for the period ended March 31, 2000.
The following description is a summary of the material provisions of the notes
and the indenture. It does not purport to be complete. This summary is subject
to and is qualified by reference to all the provisions of the indenture,
including the definitions of certain terms used in the indenture. Wherever
particular provisions or defined terms of the indenture or form of note are
referred to, these provisions or defined terms are incorporated in this
prospectus by reference.
General
We issued $180,000,000 of notes in a private placement in March 2000. The
notes are general unsecured obligations of ViroPharma, subordinate in right of
payment to certain current and future indebtedness as described under "--
Subordination of Notes." The notes are convertible into common stock as
described under "Conversion of Notes." The notes are limited to $180,000,000
aggregate principal amount. The notes were issued only in denominations of
$1,000 and multiples of $1,000. The notes will mature on March 1, 2007 unless
earlier converted, redeemed at our option or redeemed at your option upon a
fundamental change.
We are not subject to any financial covenants under the indenture. In
addition, we are not restricted under the indenture from paying dividends,
incurring debt (including senior indebtedness), or issuing or repurchasing our
securities.
You are not afforded protection in the event of a highly leveraged transaction
or a change in control of ViroPharma under the indenture except to the extent
described below under "--Redemption at Option of the Holder."
The notes bear interest at the annual rate of 6% from March 1, 2000. We will
pay interest in arrears on March 1 and September 1 of each year, beginning
September 1, 2000 to record holders at the close of business on the preceding
February 15 and August 15, as the case may be, except:
. that interest payable upon redemption will be paid to the person to whom
principal is payable, unless the redemption date is an interest payment
date; and
. as set forth in the next sentence.
In the case of any note, or portion of any note, which is converted into our
common stock during the period after any record date for any interest payment
but prior to the next interest payment date:
. if the note has been called for redemption on a redemption date that
occurs during this period, we will not be required to pay interest on the
interest payment date;
. if the note is to be redeemed in connection with a fundamental change on a
redemption date that occurs during this period, we will not be required to
pay interest on the interest payment date; or
. if otherwise, any note not called for redemption that is submitted for
conversion during this period must also be accompanied by an amount equal
to the interest due on the interest payment date on the converted principal
amount, unless at the time of conversion there is a default in the payment
of interest on the notes. See "--Conversion of Notes."
We will maintain an office in Hackensack, New Jersey for the payment of
interest, which shall initially be an office or agency of the trustee.
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We may pay interest either:
. by check mailed to your address as it appears in the note register,
provided that if you are a holder with an aggregate principal amount in
excess of $2.0 million, you shall be paid, at your written election, by
wire transfer in immediately available funds; or
. by transfer to an account maintained by you in the United States.
However, payments to The Depository Trust Company, New York, New York, which
we refer to as DTC, will be made by wire transfer of immediately available funds
to the account of DTC or its nominee. Interest will be computed on the basis of
a 360-day year composed of twelve 30-day months.
Conversion of Notes
You may convert your note, in whole or in part, into common stock through the
final maturity date of the notes, subject to prior redemption of the notes. If
we call notes for redemption, you may convert the notes only until the close of
business on the business day prior to the redemption date unless we fail to pay
the redemption price. If you have submitted your notes for redemption upon a
fundamental change, you may convert your notes only if you withdraw your
redemption election. You may convert your notes in part so long as this part is
$1,000 in principal amount or an integral multiple of $1,000. If any notes not
called for redemption are converted after a record date for any interest payment
date and prior to the next interest payment date, the notes so converted must be
accompanied by an amount equal to the interest payable on the interest payment
date on the converted principal amount unless a default exists at the time of
conversion.
The initial conversion price for the notes is $109.15 per share of common
stock, subject to adjustment as described below. We will not issue fractional
shares of common stock upon conversion of notes. Instead, we will pay cash for
such fractional shares based upon the market price of the common stock on the
business day prior to the conversion date. Except as described below, you will
not receive any accrued interest or dividends upon conversion.
To convert your note into common stock you must:
. complete and manually sign the conversion notice on the back of the note or
a facsimile of the conversion notice and deliver this notice to the
conversion agent;
. surrender the note to the conversion agent;
. if required, furnish appropriate endorsements and transfer documents;
. if required, pay all transfer or similar taxes; and
. if required, pay funds equal to interest payable on the next interest
payment date.
The date you comply with these requirements is the conversion date under the
indenture.
We will adjust the conversion price if the following events occur:
(1) we issue common stock as a dividend or distribution on our common stock;
(2) we issue to all holders of common stock certain rights or warrants to
purchase our common stock;
(3) we subdivide or combine our common stock;
(4) we distribute to all common stock holders capital stock, evidences of
indebtedness or assets, including securities but excluding:
. rights or warrants listed in (2) above,
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. dividends or distributions listed in (1) above, and
. cash distributions listed in (5) below;
(5) we distribute cash to all holders of our common stock, excluding any
quarterly cash dividend on our common stock to the extent that the
aggregate cash dividend per share of common stock in any quarter does not
exceed the greater of:
. the amount per share of common stock of the next preceding quarterly
cash dividend on the common stock to the extent that the preceding
quarterly dividend did not require an adjustment of the conversion price
pursuant to this clause (5), as adjusted to reflect subdivisions or
combinations of the common stock, and
. 3.75% of the average of the last reported sale price of the common stock
during the ten trading days immediately prior to the declaration date of
the dividend,
excluding any dividend or distribution in connection with the liquidation,
dissolution or winding up of ViroPharma.
If an adjustment is required to be made under this clause (5) as a result of a
distribution that is a quarterly dividend, the adjustment would be based upon
the amount by which the distribution exceeds the amount of the quarterly cash
dividend permitted to be excluded pursuant to this clause (5). If an
adjustment is required to be made under this clause (5) as a result of a
distribution that is not a quarterly dividend, the adjustment would be based
upon the full amount of the distribution;
(6) we make a payment in respect of a tender offer or exchange offer for our
common stock to the extent that the cash and value of any other
consideration included in the payment per share of common stock exceeds
the current market price per share of common stock on the trading day next
succeeding the last date on which tenders or exchanges may be made
pursuant to such tender or exchange offer; and
(7) someone other than us makes a payment in respect of a tender offer or
exchange offer in which, as of the closing date of the offer, our board of
directors is not recommending rejection of the offer. The adjustment
referred to in this clause (7) will only be made if:
. the tender offer or exchange offer is for an amount that increases the
offeror's ownership of common stock to more than 25% of the total shares
of common stock outstanding, and
. the cash and value of any other consideration included in the payment
per share of common stock exceeds the current market price per share of
common stock on the business day next succeeding the last date on which
tenders or exchanges may be made pursuant to the tender or exchange
offer.
However, the adjustment referred to in this clause (7) will generally not be
made if, as of the closing of the offer, the offering documents disclose a
plan or an intention to cause us to engage in a consolidation or merger of
ViroPharma or a sale of all or substantially all of our assets.
Under our rights plan, upon conversion of the notes into common stock, to the
extent that the rights plan is still in effect upon conversion, you will
receive, in addition to the common stock, the rights under the rights plan,
subject to certain limited exceptions.
In the event of:
. any reclassification of our common stock;
. a consolidation, merger or combination involving ViroPharma; or
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. a sale or conveyance to another person of all or substantially all of the
property and assets of ViroPharma,
in which holders of common stock would be entitled to receive stock, other
securities, other property, assets or cash for their common stock, holders of
notes will generally be entitled thereafter to convert their notes into the same
type of consideration they would have been entitled to receive had the notes
been converted into common stock immediately prior to one of these types of
events.
You may in certain situations be deemed to have received a distribution
subject to United States federal income tax as a dividend in the event of any
taxable distribution to holders of common stock or in certain other situations
requiring a conversion price adjustment. See "Certain Federal Income Tax
Considerations."
We may from time to time reduce the conversion price for a period of at least
20 days if our board of directors has made a determination that this reduction
would be in our best interests. Any such determination by our board will be
conclusive. We would give holders at least 15 days' notice of any reduction in
the conversion price. In addition, we may reduce the conversion price if our
board of directors deems it advisable to avoid or diminish any income tax to
holders of common stock resulting from any stock or rights distribution. See
"Certain Federal Income Tax Considerations."
We will not be required to make an adjustment in the conversion price unless
the adjustment would require a change of at least 1% in the conversion price.
However, we will carry forward any adjustments that are less than one percent of
the conversion price. Except as described above in this section, we will not
adjust the conversion price for any issuance of our common stock or convertible
or exchangeable securities or rights to purchase our common stock or convertible
or exchangeable securities.
Optional Redemption by ViroPharma
The notes are not entitled to any sinking fund. At any time on or after March
6, 2003, we may redeem the notes, in whole or in part, at the following prices
expressed as a percentage of the principal amount:
<TABLE>
<CAPTION>
Redemption Period Price
- ----------------------------------------------------------------------------------- -------------
<S> <C>
Beginning on March 6, 2003 and ending on February 29, 2004 ................... 103.429%
Beginning on March 1, 2004 and ending on February 28, 2005 ................... 102.571%
Beginning on March 1, 2005 and ending on February 28, 2006 ................... 101.714%
Beginning on March 1, 2006 and ending on February 28, 2007 ................... 100.857%
</TABLE>
and 100% at March 1, 2007. In each case, we will pay interest to, but excluding,
the redemption date. If the redemption date is an interest payment date,
interest shall be paid to the record holder on the relevant record date. We are
required to give notice of redemption by mail to holders not more than 60 but
not less than 30 days prior to the redemption date.
If less than all of the outstanding notes are to be redeemed, the trustee
shall select the notes to be redeemed in principal amounts of $1,000 or integral
multiples of $1,000 by lot, pro rata or by another method the trustee considers
fair and appropriate. If a portion of your notes is selected for partial
redemption and you convert a portion of your notes, the converted portion shall
be deemed to be of the portion selected for redemption.
We may not redeem the notes if we have failed to pay any interest or premium
on the notes and such failure to pay is continuing. We will issue a press
release if we redeem the notes.
Redemption at Option of the Holder
If a fundamental change occurs prior to March 1, 2007, you may require us to
redeem your notes, in whole or in part, on a repurchase date that is 30 days
after the date of our notice of the fundamental change. The notes will be
redeemable in multiples of $1,000 principal amount. We shall redeem the notes at
a price equal to 100% of the principal amount to be redeemed, plus accrued
interest to, but excluding, the repurchase date. If the repurchase date is an
interest payment date, we will pay interest to the record holder on the relevant
record date.
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We will mail to all record holders a notice of the fundamental change within
10 days after the occurrence of the fundamental change. We are also required to
deliver to the trustee a copy of the fundamental change notice and issue a press
release announcing the fundamental change. If you elect to redeem your notes,
you must deliver to us or our designated agent, on or before the 30th day after
the date of our fundamental change notice, your redemption notice and any notes
to be redeemed, duly endorsed for transfer. We will promptly pay the redemption
price for notes surrendered for redemption following the repurchase date.
A "fundamental change" is any transaction or event in connection with which
all or substantially all of our common stock will be exchanged for, converted
into, acquired for or constitute solely the right to receive, consideration,
whether by means of an exchange offer, liquidation, tender offer, consolidation,
merger, combination, reclassification, recapitalization or otherwise, which
consideration is not all or substantially all common stock:
. listed on, or that will be listed on or immediately after the transaction
or event on a United States national securities exchange; or
. approved for quotation on the Nasdaq National Market or any similar United
States system of automated dissemination of quotations of securities
prices.
We will comply with any applicable provisions of Rule 13e-4 and any other
tender offer rules under the Exchange Act in the event of a fundamental change.
These fundamental change redemption rights could discourage a potential
acquiror of ViroPharma. However, this fundamental change redemption feature is
not the result of management's knowledge of any specific effort to obtain
control of ViroPharma by means of a merger, tender offer or solicitation, or
part of a plan by management to adopt a series of anti-takeover provisions. The
term "fundamental change" is limited to certain specified transactions and may
not include other events that might adversely affect our financial condition.
Our obligation to offer to redeem the notes upon the occurrence of a fundamental
change would not necessarily afford you protection in the event of a highly
leveraged transaction, reorganization, merger or similar transaction involving
ViroPharma.
We may be unable to redeem the notes in the event of a fundamental change. If
a fundamental change were to occur, we may not have enough funds to pay the
redemption price for all tendered notes. In addition, in certain situations, a
fundamental change could result in an event of default under our current forms
of indebtedness. Any future credit agreements or other agreements relating to
our indebtedness may contain similar provisions, or expressly prohibit the
repurchase of the notes upon a fundamental change or may provide that a
fundamental change constitutes an event of default under that agreement. If a
fundamental change occurs at a time when we are prohibited from purchasing or
redeeming notes, we could seek the consent of our lenders to redeem the notes or
could attempt to refinance this debt. If we were not able to obtain such a
consent, we could not purchase or redeem the notes. Our failure to redeem
tendered notes would constitute an event of default under the indenture, which
might constitute a default under the terms of our other indebtedness. In such
circumstances, or if a fundamental change would constitute an event of default
under our senior indebtedness, the subordination provisions of the indenture
would restrict payments to the holders of notes.
Subordination of Notes
Payment on the notes will, to the extent provided in the indenture, be
subordinated in right of payment to the prior payment in full of all of our
senior indebtedness.
Upon any distribution of our assets upon any dissolution, winding up,
liquidation or reorganization, the payment of the principal of, or premium, if
any, interest, and liquidated damages, if any, on, the notes will be
subordinated in right of payment to the prior payment in full in cash or other
payment satisfactory to the holders of senior indebtedness of all senior
indebtedness. In the event of any acceleration of the notes because of an event
of default, the holders of any outstanding senior indebtedness would be entitled
to payment in full in cash or other payment satisfactory to the holders of
senior indebtedness of all senior indebtedness obligations before the holders of
the notes are entitled to receive any payment or distribution. We are required
under the indenture to promptly notify holders of senior indebtedness, if
payment of the notes is accelerated because of an event of default.
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We cannot make any payment on the notes if:
. a default in the payment of senior indebtedness occurs and is continuing
beyond any applicable period of grace (called a "payment default"); or
. a default other than a payment default on any designated senior
indebtedness occurs and is continuing that permits holders of designated
senior indebtedness to accelerate its maturity, or in the case of a lease,
a default occurs and is continuing that permits the lessor to either
terminate the lease or require us to make an irrevocable offer to terminate
the lease following an event of default under the lease, and the trustee
receives a notice of such default (called a "payment blockage notice") from
us or any other person permitted to give such notice under the indenture
(called a "non-payment default").
We may resume payments and distributions on the notes:
. in case of a payment default, upon the date on which such default is cured
or waived or ceases to exist; and
. in case of a non-payment default, the earlier of the date on which such
nonpayment default is cured or waived or ceases to exist or 179 days after
the date on which the payment blockage notice is received, if the maturity
of the designated senior indebtedness has not been accelerated, or in the
case of any lease, 179 days after notice is received if we have not
received notice that the lessor under such lease has exercised its right to
terminate the lease or require us to make an irrevocable offer to terminate
the lease following an event of default under the lease.
No new period of payment blockage may be commenced pursuant to a payment
blockage notice unless 365 days have elapsed since the initial effectiveness of
the immediately prior payment blockage notice. No non-payment default that
existed or was continuing on the date of delivery of any payment blockage notice
shall be the basis for any later payment blockage notice.
If the trustee or any holder of the notes receives any payment or distribution
of our assets in contravention of the subordination provisions on the notes
before all senior indebtedness is paid in full in cash or other payment
satisfactory to holders of senior indebtedness, then such payment or
distribution will be held in trust for the benefit of, and paid over or
delivered to, holders of senior indebtedness or their representatives to the
extent necessary to make payment in full in cash or payment satisfactory to the
holders of senior indebtedness of all unpaid senior indebtedness.
In the event of our bankruptcy, dissolution or reorganization, holders of
senior indebtedness may receive more, ratably, and holders of the notes may
receive less, ratably, than our other creditors. This subordination will not
prevent the occurrence of any event of default under the indenture.
As of May 1, 2000, we had approximately $1.7 million of senior indebtedness
outstanding. We are not prohibited from incurring debt, including senior
indebtedness, under the indenture. We may from time to time incur additional
debt, including senior indebtedness. The indenture will not limit:
. the amount of additional senior indebtedness which ViroPharma can create,
incur, assume or guarantee; or
. the amount of indebtedness or other liabilities any future subsidiary can
create, incur, assume or guarantee.
We are obligated to pay reasonable compensation to the trustee and to
indemnify the trustee against certain losses, liabilities or expenses incurred
by the trustee in connection with its duties relating to the notes. The
trustee's claims for these payments will generally be senior to those of
noteholders in respect of all funds collected or held by the trustee.
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Certain Definitions
"designated senior indebtedness" shall mean all indebtedness existing on
February 24, 2000 plus any senior indebtedness incurred after such date that
expressly provides that such senior indebtedness shall be "designated senior
indebtedness" for purposes of the indenture.
"indebtedness" means:
(1) all indebtedness, obligations and other liabilities for borrowed money,
including overdrafts, foreign exchange contracts, currency exchange
agreements, interest rate protection agreements, and any loans or advances
from banks, or evidenced by bonds, debentures, notes or similar
instruments, other than any account payable or other accrued current
liability or obligation incurred in the ordinary course of business in
connection with the obtaining of materials or services;
(2) obligations with respect to letters of credit, bank guarantees or
bankers' acceptances;
(3) obligations in respect of real or personal property leases required in
conformity with generally accepted accounting principles to be accounted
for as capitalized lease obligations on our balance sheet;
(4) all obligations and other liabilities under any lease or related
document, including purchase agreements, in connection with the lease of
real property which provides that we are contractually obligated to
purchase or cause a third party to purchase the leased property and
thereby guarantee a minimum residual value of the leased property to the
lessor and our obligations under the lease or related document to purchase
or to cause a third party to purchase the leased property;
(5) all obligations with respect to an interest rate or other swap, cap or
collar agreement or foreign currency hedge, exchange or purchase
agreement;
(6) all direct or indirect guaranties, our obligations or liabilities to
purchase, acquire or otherwise assure a creditor against loss in respect
of, indebtedness, obligations or liabilities of others of the type
described in (1) through (5) above;
(7) any obligations described in (1) through (5) above secured by any
mortgage, pledge, lien or other encumbrance existing on property which is
owned or held by us; and
(8) any deferrals, renewals, extensions, refundings, amendments, modifications
or supplements to (1) through (7) above.
"senior indebtedness" means the principal, premium, if any, interest,
including any interest accruing after bankruptcy and rent or termination payment
on or other amounts due on our current or future indebtedness, whether created,
incurred, assumed, guaranteed or in effect guaranteed by us. However, senior
indebtedness does not include:
. indebtedness that expressly provides that it shall not be senior in right
of payment to the notes or expressly provides that it is on the same basis
or junior to the notes; and
. the notes.
Events of Default; Notice and Waiver
The following will be events of default under the indenture:
. we fail to pay principal or premium, if any, upon redemption or otherwise
on the notes, whether or not the payment is prohibited by subordination
provisions;
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. we fail for 30 days to pay any interest and liquidated damages, if any, on
the notes, whether or not the payment is prohibited by subordination
provisions of the indenture;
. we fail to perform or observe any of the covenants in the indenture for 60
days after notice; or
. certain events involving bankruptcy, insolvency or reorganization of
ViroPharma.
The trustee may withhold notice to the holders of the notes of any default,
except defaults in payment of principal, premium, interest or liquidated
damages, if any, on the notes. However, the trustee must consider it to be in
the interest of the holders of the notes to withhold this notice.
If an event of default occurs and continues, the trustee or the holders of at
least 25% in principal amount of the outstanding notes may declare the
principal, premium, and accrued interest and liquidated damages, if any, on the
outstanding notes to be immediately due and payable. In case of certain events
of bankruptcy or insolvency involving ViroPharma, the principal, premium and
accrued interest and liquidated damages, if any, on the notes will automatically
become due and payable. Subject to certain limitations, the holders of a
majority of the principal amount of outstanding notes may waive any default
other than non-payment defaults. Payments of principal, premium, or interest on
the notes that are not made when due will accrue interest at the annual rate of
6% from the required payment date.
The holders of a majority of outstanding notes will have the right to direct
the time, method and place of any proceedings for any remedy available to the
trustee, subject to limitations specified in the indenture. No holder of the
notes may pursue any remedy under the indenture, except in the case of a default
in the payment of principal, premium or interest on the notes, unless:
. the holder has given the trustee written notice of an event of default;
. the holders of at least 25% in principal amount of outstanding notes make a
written request, and offer reasonable indemnity, to the trustee to pursue
the remedy;
. the trustee does not receive an inconsistent direction from the holders of
a majority in principal amount of the notes; and
. the trustee fails to comply with the request within 60 days after receipt.
Modification of the Indenture
The consent of the holders of a majority in principal amount of the
outstanding notes is required to modify or amend the indenture. However, a
modification or amendment requires the consent of the holder of each outstanding
note if it would:
. extend the fixed maturity of any note;
. reduce the rate or extend the time for payment of interest of any note;
. reduce the principal amount or premium of any note;
. reduce any amount payable upon redemption of any note;
. adversely change our obligation to redeem any note upon a fundamental
change;
. impair the right of a holder to institute suit for payment on any note;
. change the currency in which any note is payable;
. impair the right of a holder to convert any note;
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. adversely modify the subordination provisions of the indenture; or
. reduce the percentage of notes required for consent to any modification of
the indenture.
We are permitted to modify certain provisions of the indenture without the
consent of the holders of the notes.
Information Concerning the Trustee
We have appointed Summit Bank, Princeton, New Jersey, the trustee under the
indenture, as paying agent, conversion agent, note registrar and custodian for
the notes. The trustee or its affiliates may provide banking and other services
to us in the ordinary course of their business. The indenture contains certain
limitations on the rights of the trustee, as long as it or any of its affiliates
remains our creditor, to obtain payment of claims in certain cases or to realize
on certain property received on any claim as security or otherwise. The trustee
and its affiliates will be permitted to engage in other transactions with us.
However, if the trustee or any affiliate continues to have any conflicting
interest and a default occurs with respect to the notes, the trustee must
eliminate such conflict or resign.
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DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 105,000,000 shares, including
100,000,000 shares of common stock, par value $0.002 per share and 5,000,000
shares of preferred stock, par value $0.001 per share.
Common Stock
As of April 30, 2000, there were 15,182,915 shares of common stock
outstanding held of record by 436 stockholders.
The holders of our common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of stockholders and do not
have cumulative voting rights. Elections of directors are determined by a
plurality of the votes cast and the board of directors is divided into three
classes, each as nearly equal in number as possible. Our certificate of
incorporation may be amended as permitted by law. Except as otherwise required
by law, all other matters are determined by a majority of the votes cast.
Holders of our common stock are entitled to receive ratably such dividends, if
any, as may be declared by the board of directors out of funds legally available
therefor, subject to any preferential dividend rights of outstanding preferred
stock. Upon our liquidation, dissolution or winding up, subject to any
preferential liquidation rights of outstanding preferred stock, the holders of
our common stock are entitled to receive ratably our net assets available after
the payment of all debts and other liabilities. Holders of our common stock have
no preemptive, subscription, redemption or conversion rights. The outstanding
shares of our common stock are fully paid and nonassessable. The rights,
preferences and privileges of the holders of our common stock are subject to,
and may be adversely affected by, the rights of the holders of shares of
preferred stock that we have designated and issued and any series of preferred
stock which we may designate and issue in the future.
Preferred Stock
As of April 30, 2000, there were 2,300,000 shares of series A convertible
participating preferred stock outstanding. There were also rights to purchase
200,000 shares of series A junior participating preferred stock in connection
with our stockholder rights plan discussed below.
On May 5, 1999, we completed the sale of 2,300,000 shares of series A
convertible participating preferred stock to PSV, LP (formerly Perseus-Soros
BioPharmaceutical Fund, L.P). Our net proceeds from this sale were approximately
$13.3 million, including a cost of $450,000 which was paid and recorded in
September 1999. In addition, as discussed below, we issued PSV warrants to
purchase 595,000 shares of our common stock at $9.53 per share. These 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) by PSV at any time and by
us under certain conditions. As of December 31, 1999, these shares were
convertible into 2,346,295 shares of our common stock. There is a 5% annual
dividend payable quarterly, associated with the series A convertible
participating preferred stock. We may choose to permanently defer payment of any
dividend, in which case the dividend is added to the liquidation value and
increases the conversion ratio of the series A convertible participating
preferred stock into common stock. Holders of the series A convertible
participating preferred stock have voting rights equivalent to those of the
holders of our common stock. Such holders also have preemptive rights with
respect to proposed private placements of our common stock or other equity
securities for cash at a price below $6.20 per share (with adjustment for any
stock dividend, stock split or other subdivision of stock, or any combination or
reclassification of stock), other than issuances under our equity compensation
or stock option plans and issuances pursuant to our stockholder rights plan. In
addition, holders of the series A convertible participating preferred stock have
liquidation rights equal to their original investment, subject to adjustment. As
a result of the difference in the price paid per share for the series A
convertible participating preferred stock and the fair market value per share of
our common stock on the date of our sale of the series A convertible
participating preferred stock to PSV, we have reflected the amount of the
beneficial conversion feature of the series A convertible participating
preferred stock in our net loss allocable to common stockholders for the nine-
month period ended September 30, 1999. The fair market value per share of our
common stock was determined using the closing price of our stock as quoted on
Nasdaq on the date of our sale of this stock to PSV. The beneficial conversion
feature of the series A preferred stock aggregated $4,140,000 and is included in
the net loss allocable to common stockholders for the nine-month period ended
September 30, 1999.
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As of April 30, 2000, pursuant to our certificate of incorporation, our board
of directors has the authority, without further action by the holders of our
common stock, to issue 5,000,000 shares of preferred stock from time to time in
such series and with such preferences and rights as it may designate. To date,
we have issued 2,300,000 shares of Series A convertible participating preferred
stock and have reserved for issuance 200,000 shares of series A junior
participating preferred stock. Thus, we may issue an additional 2,500,000 shares
of preferred stock. The preferences and rights of any such additional preferred
stock may be superior to those of the holders of our common stock. For example,
the holders of preferred stock may be given a preference in payment upon our
liquidation, or for the payment or accumulation of dividends before any
distributions are made to the holders of common stock. We have no plans,
agreements or understandings for the issuance of any shares of any additional
series of preferred stock.
Warrants
Pursuant to a common stock purchase warrant agreement dated May 5, 1999, we
issued a warrant to purchase 595,000 shares of common stock to PSV in connection
with the sale to PSV of the series A preferred stock described above. The
warrant is exercisable at a price of $9.53 per share and expires on May 5, 2004.
The number of shares of common stock purchasable under the warrant and the
exercise price of the warrant are subject to adjustment in the event of certain
recapitalizations, reorganizations, stock splits and combinations.
Indemnification and Limitation of Liability
Our certificate of incorporation provides that our directors shall not be
personally liable to us or our stockholders for monetary damages for a breach of
fiduciary duty as a director, except for liability:
. for any breach of such person's duty of loyalty to us or our stockholders;
. for acts or omissions not in good faith or involving intentional misconduct
or a knowing violation of law;
. for the payment of unlawful dividends and certain other actions prohibited
by Delaware corporate law; and
. for any transaction resulting in receipt by such person of an improper
personal benefit.
We have entered into indemnification agreements with each of our directors and
executive officers. In addition, our by-laws provide for the indemnification, to
the full extent authorized by law, of any person made, or threatened to be made,
a party to an action or proceeding, whether criminal, civil, administrative or
investigative, by reason of the fact that such person is or was one of our
directors, officers or employees, or serves or served any other enterprise as a
director, officer or employee at our request.
We have obtained a directors' and officers' liability insurance policy
which provides our directors and officers with insurance coverage for losses
arising from claims based on breaches of duty, negligence, error and other
wrongful acts. At present, there is no pending litigation or proceeding and we
are not aware of any threatened litigation or proceedings, involving any
director, officer, employee or agent where indemnification will be required or
permitted under our certificate of incorporation or by-laws.
Anti-Takeover Effects of Provisions of Charter Documents and Delaware Law
Our certificate of incorporation and by-laws include several provisions
that may have the effect of deterring hostile takeovers or delaying or
preventing changes in control of ViroPharma or our management. First, our board
of directors is divided into three classes, each nearly equal in number. Under
Delaware law, directors of a corporation with a classified board may be removed
only for cause unless the corporation's certificate of incorporation provides
otherwise. Our certificate of incorporation does not provide otherwise. Each
class of directors will serve for a term of three years and until their
successors have been elected and qualified. Accordingly, our officers and
directors and related stockholders who hold a majority of the shares of common
stock entitled to vote in any election of directors may elect all of the
directors standing for election and may exert considerable influence over our
management and policies and all matters requiring stockholder approval,
including fundamental transactions.
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In addition, our board of directors has the ability to establish the rights
of, and to issue, substantial amounts of preferred stock without the need for
stockholder approval, which preferred stock may be used to create voting
impediments. These and other provisions of our certificate of incorporation and
by-laws and the Delaware law could discourage potential acquisition proposals
and could delay or prevent a change in control of ViroPharma or our management.
Stockholder Rights Plan
On September 10, 1998, our board of directors adopted a stockholder rights
plan and, in connection with that plan, designated 200,000 shares of series A
junior participating preferred stock. Under this plan, a preferred share
purchase right was issued as a dividend on each outstanding share of our common
stock as of September 17, 1998. This preferred share purchase right entitles its
holder to purchase from us a unit consisting of 1/100th of a share of our series
A junior participating preferred stock at an exercise price of $125 per unit,
subject to adjustment. Each unit carries voting and dividend rights that are
intended to produce the equivalent of one share of common stock. These rights
expire on September 10, 2008.
The preferred share purchase rights granted under the stockholder rights plan
will be exercisable and will trade separately from our common stock only if a
person or group acquires beneficial ownership of 20% or more of our common stock
or commences a tender or exchange offer that would result in such a person or
group owning 20% or more of our common stock. Only when one or more of these
events occur will stockholders receive certificates for the rights granted under
the stockholder rights plan.
If any person actually acquires 20% or more of our common stock--either than
through a tender or exchange offer for our common stock at a price and on terms
that provide fair value to all stockholders--or if a holder of 20% or more of
our common stock engages in certain "self-dealing" transactions or engages in a
merger or other business combination in which we survive and our common stock
remains outstanding, the other holders of our common stock will be able to
exercise their preferred share purchase rights and receive shares of our common
stock having a value equal to double the exercise price of the right.
Additionally, if we are involved in certain other mergers where our shares are
exchanged or certain major sales of our assets occur, the holders of our common
stock will be able to exercise their preferred share purchase rights and receive
shares of the acquiring company having a value equal to double the exercise
price of the right. In either case, the holders of the rights may, in lieu of
exercise, surrender the rights in exchange for one-half of the amount of
securities otherwise purchasable. Upon the occurrence of any of these events,
the preferred share purchase rights will no longer be exercisable into series A
junior participating preferred stock.
We will be entitled to redeem the preferred share purchase rights at $.01 per
right at any time until the 10th day following a public announcement that a
person has acquired a 20% ownership position in our common stock. In our
discretion, we may extend the period during which we can redeem these rights.
Registration Rights
As of April 30, 2000, holders of 791,315 shares of our common stock have both
piggyback and demand registration rights. In addition, our founders have
piggyback registration rights with respect to 840,450 shares of our common stock
and the holders of shares of our series A preferred stock that are convertible
into 2,346,295 shares of our common stock and the holders of warrants to
purchase 595,000 shares of our common stock, have demand registration rights.
Absent any contractual restrictions, the holders of demand registration rights
can exercise such rights at any time. By exercising such registration rights,
subject to some limitations, the holders of such rights could cause a
significant number of shares of our common stock to be registered and sold in
the public market. Such sales, or the perception that these sales could occur,
may have an adverse effect on the market price for our common stock and could
impair our ability to raise capital through an offering of equity securities. We
are seeking waivers of all such piggyback registration rights applicable to this
offering. In addition, American Home Products Corporation will have certain
piggyback registration rights for any shares of common stock it purchases from
us.
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Stock Option Plan
We adopted a stock option plan in September 1995. We authorized a total of
1,200,000 shares of our common stock for issuance under our 1995 stock option
plan. Our board of directors amended and restated our 1995 stock option plan in
March 1998 and March 2000 and our stockholders approved the amended and restated
plan in May 1998 and May 2000. A total of 2,750,000 shares of our common stock
have been authorized for issuance under our stock option plan, including
1,200,000 shares authorized under the original plan and 1,550,000 additional
shares authorized since the amended and restated plan was adopted.
The stock option plan provides for grants of stock options to our employees
and directors and to our consultants and advisors who perform valuable services
for us. The stock option plan is intended to further the growth and success of
ViroPharma and its subsidiaries by enabling our employees, directors,
consultants and advisors to acquire shares of our common stock, thereby
increasing their personal interest in our growth and success. The stock option
plan also is intended to provide a means of rewarding outstanding performance by
such persons to ViroPharma and its subsidiaries.
The stock option plan may be administered by our board of directors or a
committee consisting of at least two of our non-employee directors. In
accordance with the provisions of our stock option plan, the board of directors
or the committee has the authority to determine the persons to whom stock
options will be granted, the number of shares to be covered by each stock
option, and the exercise price per share. In no event may the board of directors
or the committee reprice outstanding options, or grant any option at an exercise
price less than fair market value. The board of directors or the committee also
has the authority to prescribe, amend and rescind rules and regulations relating
to our stock option plan, to determine the conditions that must be satisfied in
order for a stock option to vest and become exercisable, to accelerate the
vesting or exercise date of any stock option, and to interpret our stock option
plan or any agreement entered into with respect to a stock option under the
plan.
The exercise price for shares of our common stock subject to an option under
our stock option plan may, at the discretion of the board of directors or the
committee, be paid in cash, in shares of our common stock valued at fair market
value on the exercise date, or in a combination of cash and shares of our common
stock.
If we are subject to a change of control in which our stock option plan is not
continued by our successor, or in which equivalent, substituted options to
acquire common stock of our successor are not provided to persons holding
options issued under our stock option plan, the stock option plan will terminate
and all unvested options held by employees we have employed for at least two
years prior to the change of control, or by directors who have served on our
board of directors for at least two years prior to the change of control, will
become fully and immediately vested and exercisable. As to unvested options held
by our other employees and directors, 50% will become immediately vested and
exercisable, and the remainder will lapse and be forfeited.
If we are subject to a change of control in which our stock option plan is
continued by our successor, or in which equivalent, substituted options to
acquire common stock of our successor are provided to persons holding options
issued under our stock option plan, options held by our executive officers and
directors who are not offered substantially equivalent employment with our
successor or a related employer, or whose employment is terminated within six
months after the change of control, will become fully and immediately vested and
exercisable, while options held by our employees and directors who are offered
substantially equivalent employment with our successor or a related employer
will not be subject to accelerated vesting.
In addition, in the event of a merger, consolidation or tax-free
reorganization or sale of substantially all of our assets, our board of
directors has the authority to distribute to each person holding options issued
under our stock option plan, cash and other property in an amount equal to and
in the same form as the person would have received from our successor if that
person had owned the shares subject to the option at the time of the change of
control, provided that the exercise price the person would have paid to purchase
such shares will be deducted from the amount paid to the person.
The board of directors may suspend, amend or terminate our stock option plan,
subject to any required approval by our stockholders.
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Employee Stock Purchase Plan
In March 2000, our board of directors adopted an employee stock purchase plan,
and in May 2000 our stockholders approved the plan. The stock purchase plan
provides employees with the right to purchase shares of our common stock through
payroll deduction. A total of 300,000 shares of our common stock are available
for purchase under the stock purchase plan. The purpose of the stock purchase
plan is to encourage the purchase of common stock by our employees, to provide
employees with a personal stake in ViroPharma and to help us retain our
employees
The stock purchase plan is administered by our board of directors, which may
delegate responsibility for administration to a committee of the board. Subject
to the terms of the stock purchase plan, the board or the committee has
authority to interpret the stock purchase plan, prescribe, amend and rescind
rules and regulations relating to it and make all other determinations deemed
necessary or advisable in administering the stock purchase plan.
A full-time employee is eligible to participate in the stock purchase plan if
he or she is employed on the first day of an offering period. A part-time
employee is eligible to participate in the stock purchase plan if, as of the
last day of the month immediately preceding the effective date of an election to
purchase our common stock under the stock purchase plan, he or she has been
employed by us on a part-time basis for at least 24 consecutive months. Any
employee who, after purchasing our common stock under the stock purchase plan,
would own 5% or more of the total combined voting power or value of all classes
of our stock or any subsidiary corporation is not eligible to participate.
Stock will be available to be purchased every six months. Eligible employees
may elect to participate in the stock purchase plan during an offering which
starts on each January 1 and July 1 and ends on each June 30 and December 31,
respectively. Shares of common stock will be deemed to have been purchased on
June 30 or December 31, as applicable. The purchase price per share will be 85
percent of the lesser of:
. the fair market value per share of our common stock on January 1 or
July 1, as applicable; or
. the fair market value per share of our common stock on June 30 or
December 31, as applicable.
An employee's rights under the stock purchase plan belong to the employee
alone and may not be transferred or assigned to any other person during the
employee's lifetime.
A participant may not transfer the shares purchased pursuant to the stock
purchase plan for the nine-month period commencing on the date the shares are
purchased. In order to ensure that the transfer restrictions are adhered to, we
will hold the shares in escrow for the nine-month restriction period. The
restriction period may be waived if the participant makes a written request, and
the board or committee determines that the participant has suffered an
unforeseeable financial emergency. An unforeseeable financial emergency is an
unexpected need for cash arising from illness, casualty loss, sudden financial
reversal, or other unforeseeable occurrence. After the shares of common stock
have been issued under the stock purchase plan and the restriction period has
expired, such shares may be assigned or transferred the same as any other
shares.
The board or the committee has the right to amend, modify or terminate the
stock purchase plan at any time without notice, provided that upon any
termination, all shares or unapplied payroll deductions will be distributed to
participants, and provided further, that no amendment will affect the right of a
participant to receive his or her proportionate interest in the shares or
unapplied payroll deductions. Upon any amendment of the stock purchase plan,
stockholder approval will be obtained if required by law.
Stock Purchase Agreement
In December 1999, we entered into a stock purchase agreement with American
Home Products Corporation in connection with our collaboration and license
agreement with them. Under the stock purchase agreement, American Home Products
Corporation is obligated to purchase from us shares of our common stock at a
market value premium at the time of completion of certain product development
stages.
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Transfer Agent and Registrar
The transfer agent and registrar for our common stock is StockTrans, Inc.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain U.S. federal income tax considerations
relating to the purchase, ownership and disposition of the notes and common
stock into which notes may be converted, but does not purport to be a complete
analysis of all the potential tax considerations relating thereto. This summary
is based on laws, regulations, rulings and decisions now in effect, all of which
are subject to change or differing interpretation possibly with retroactive
effect. Except as specifically discussed below with regard to non-U.S. holders
(as defined below), this summary applies only to beneficial owners that will
hold notes and common stock into which notes may be converted as "capital
assets," within the meaning of Section 1221 of the Internal Revenue Code of
1986, as amended, referred to as the "Code," and who, for U.S. federal income
tax purposes, are:
. individual citizens or residents of the U.S, including a non-resident alien
individual who is a lawful permanent resident of the U.S. or meets the
"substantial presence" test under Section 7701 (b) of the Code;
. corporations, partnerships or other entities created or organized in or
under the laws of the U.S. or of any political subdivision thereof (unless,
in the case of a partnership, Treasury Regulations otherwise provide);
. estates, the incomes of which are subject to U.S. federal income taxation
regardless of the source of such income; or
. trusts subject to the primary supervision of a U.S. court and the control
of one or more U.S. persons, referred to as U.S. holders.
Persons who are not U.S. holders and are not subject to U.S. federal income tax
on a net basis on income with respect to a note because such income is
effectively connected with the conduct of U.S. trade or business (referred to as
"non-U.S. holders"), are subject to special U.S. federal income tax
considerations, some of which are discussed below.
This discussion does not address tax considerations applicable to an
investor's particular circumstances or to investors that may be subject to
special tax rules, such as banks, holders subject to the alternative minimum
tax, S corporations, tax-exempt organizations, insurance companies, foreign
persons or entities (except to the extent specifically set forth below), dealers
in securities or currencies, persons that will hold notes as a position in a
hedging transaction, "straddle" or "conversion transaction" for tax purposes or
persons deemed to sell notes or common stock under the constructive sale
provisions of the Code. This summary discusses the tax considerations applicable
to initial purchasers of the notes who purchase the notes at their "issue price"
as defined in Section 1273 of the Code and does not discuss the tax
considerations applicable to subsequent purchasers of the notes. ViroPharma has
not sought any ruling from the Internal Revenue Service or an opinion of counsel
with respect to the statements made and the conclusions reached in the following
summary, and there can be no assurance that the Internal Revenue Service will
agree with such statements and conclusions. In addition, the Internal Revenue
Service is not precluded from successfully adopting a contrary position. This
summary does not consider the effect of the federal estate or gift tax laws or
the tax laws (except as set forth below with respect to non-U.S. holders) of any
applicable foreign, state, local or other jurisdiction.
Investors considering the purchase of notes should consult their own tax
advisors with respect to the application of the United States federal income tax
laws to their particular situations as well as any tax consequences arising
under the federal estate or gift tax rules or under the laws of any state, local
or foreign taxing jurisdiction or under any applicable tax treaty.
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U.S. Holders
Taxation of Interest
Interest paid on the notes will be included in the income of a U.S. holder as
ordinary income at the time it is treated as received or accrued, in accordance
with such holder's regular method of accounting for U.S. federal income tax
purposes. Under Treasury Regulations, the possibility of an additional payment
under a note may be disregarded for purposes of determining the amount of
interest or original issue discount income to be recognized by a holder in
respect of such note (or the timing of such recognition) if the likelihood of
the payment, as of the date the notes are issued, is remote. Failure of
ViroPharma to file or cause to be declared effective a shelf registration
statement as described under "Description of Notes -- Registration Rights of the
Noteholders" may result in the payment of predetermined liquidated damages in
the manner described in that section of this prospectus. In addition, a holder
may require ViroPharma to redeem any and all of his notes in the event of a
fundamental change. We believe that the likelihood of a liquidated damages
payment with respect to the notes is remote and do not intend to treat such
possibility as affecting the yield to maturity of any note. Similarly, we intend
to take the position that a "fundamental change" is remote under the Treasury
Regulations, and likewise do not intend to treat the possibility of a
"fundamental change" as affecting the yield to maturity of any note. In the
event either contingency occurs, it would affect the amount and timing of the
income that must be recognized by a U.S. holder of notes.
Interest Deduction on the Notes
The Taxpayer Relief Act of 1997 enacted Section 163(l) of the Code, which
disallows any interest paid or accrued on indebtedness payable in equity of the
issuer. Indebtedness is treated as payable in equity of the issuer if (1) a
substantial portion of the principal or interest is required to be paid or
converted into the equity, (2) a substantial amount of the principal or interest
is required to be determined by reference to the value of the equity, or (3) the
indebtedness is part of an arrangement which is reasonably expected to result in
a transaction in (1) or (2). Principal or interest is treated as required to be
so paid, converted or determined if it may be required at the option of the
holder of the debt instrument and there is a substantial certainty that the
option will be exercised. ViroPharma does not believe that deductions for
interest paid or accrued on the notes should be disallowed under Section 163(l)
but there can be no assurance that such position will not be challenged
successfully by the IRS.
Sale, Exchange or Redemption of the Notes
Upon the sale, exchange (other than a conversion, or other exchange for stock
or debt of ViroPharma) or redemption of a note, a U.S. holder generally will
recognize capital gain or loss equal to the difference between:
. the amount of cash proceeds and the fair market value of any property
received on the sale, exchange or redemption (except to the extent such
amount is attributable to accrued interest income not previously included
in income, which will be taxable as ordinary income, or is attributable to
accrued interest that was previously included in income, which amount may
be received without generating further income); and
. such holder's adjusted tax basis in the note. A U.S. holder's adjusted tax
basis in a note generally will equal the cost of the note to such holder.
Such capital gain or loss will be long-term capital gain or loss if the
U.S. holder's holding period in the note is more than one year at the time
of sale, exchange or redemption. Long-term capital gains recognized by
certain noncorporate U.S. holders, including individuals, will generally be
subject to a maximum rate of tax of 20%. The deductibility of capital
losses is subject to limitations.
Conversion of the Notes
A U.S. holder generally will not recognize any income, gain or loss upon
conversion of a note into common stock except with respect to cash received in
lieu of a fractional share of common stock. A U.S. holder's tax basis in the
common stock received on conversion of a note will be the same as such holder's
adjusted tax basis in the note at the time of conversion (reduced by any basis
allocable to a fractional share interest), and the holding period for the common
stock received on conversion will generally include the holding period of the
note converted. However, a
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U.S. holder's tax basis in shares of common stock considered attributable to
accrued interest generally will equal the amount of such accrued interest
included in income, and the holding period for such shares shall begin on the
date of conversion. Cash received in lieu of a fractional share of common stock
upon conversion will be treated as a payment in exchange for the fractional
share of common stock. Accordingly, the receipt of cash in lieu of a fractional
share of common stock generally will result in capital gain or loss, measured by
the difference between the cash received for the fractional share and the
holder's adjusted tax basis in the fractional share.
Dividends
Distributions, if any, made on the common stock after a conversion generally
will be included in the income of a U.S. holder as ordinary dividend income to
the extent of our current or accumulated earnings and profits. Distributions in
excess of our current and accumulated earnings and profits will be treated as a
return of capital to the extent of the U.S. holder's basis in the common stock
and thereafter as capital gain.
The conversion price of the notes is subject to adjustment under certain
circumstances. See "Description of Notes--Conversion of Notes". Under Section
305 of the Code and the Treasury Regulations issued thereunder, certain
adjustments to the conversion price may be treated as a taxable distribution to
U.S. holders, resulting in ordinary income (subject to a possible dividends-
received deduction for corporate holders) to the extent of ViroPharma's current
and accumulated earnings and profits if, and to the extent that, adjustments in
the conversion price increase such holder's proportionate interest in the
earnings and profits and assets of ViroPharma. Such adjustments may occur in
limited circumstances (particularly adjustments to reflect taxable dividends to
holders of common stock of ViroPharma) and in such a case a constructive
distribution would arise, whether or not the holders ever convert the notes.
U.S. holders, therefore, could have taxable income as a result of an event in
which they received no cash or property. A holder's tax basis in a note,
however, generally will be increased by the amount of any constructive dividend
included in taxable income. Similarly, a failure to adjust the conversion rate
to reflect a stock dividend or other event increasing the proportionate interest
of the holders of outstanding common stock could, in some circumstances, give
rise to deemed dividend income to holders of ViroPharma's common stock.
Sale of Common Stock
Upon the sale or exchange of common stock a U.S. holder generally will
recognize capital gain or loss equal to the difference between (1) the amount of
cash and the fair market value of any property received upon the sale or
exchange and (2) such U.S. holder's adjusted tax basis in the common stock. Such
capital gain or loss will be long-term capital gain or loss if the U.S. holder's
holding period in common stock is more than one year at the time of the sale or
exchange. Long-term capital gains recognized by certain non-corporate U.S.
holders, including individuals, will generally be subject to a maximum rate of
tax of 20%. A U.S. holder's basis and holding period in common stock received
upon conversion of a note are determined as discussed above under "Conversion of
the Notes. The deductibility of capital losses is subject to limitations.
Special Tax Rules Applicable to Non-U.S. Holders
In general, subject to the discussion below concerning backup withholding:
(a) Payments of principal or interest on the notes by us or any paying
agent to a beneficial owner of a note that is a non-U.S. holder will not be
subject to U.S. withholding tax, provided that, in the case of interest,
(i) such non-U.S. holder does not own, actually or constructively, 10%
or more of the total combined voting power of all classes of our stock
entitled to vote within the meaning of Section 871 (h) (3) of the Code (a
non-U.S. holder constructively owns the common shares of ViroPharma that it
would receive upon conversion of the notes),
(ii) such non-U.S. holder is not a "controlled foreign corporation"
with respect to which ViroPharma is a "related person" within the meaning
of Section 864(d)(4) the Code,
(iii) such non-U.S. holder is not a bank receiving interest described in
Section 881(c)(3)(A) of the Code, and
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(iv) the certification requirements under Section 871(h) or Section
881(c) of the Code and Treasury Regulations thereunder (discussed below)
are satisfied,
referred to as the "portfolio interest exemption";
(b) A non-U.S. holder of a note or common stock will not be subject to U.S.
federal income tax on gains realized on the sale, exchange or other
disposition of such note or common stock unless,
(i) such non-U.S. holder is an individual who is present in the U.S.
for 183 days or more in the taxable year of sale, exchange or other
disposition, and certain conditions are met,
(ii) such gain is effectively connected with the conduct by the non-
U.S. holder of a trade or business in the U.S. and, if certain U.S. income
tax treaties apply, is attributable to a U.S. permanent establishment
maintained by the non-U.S. holder,
(iii) the non-U.S. holder is subject to Code provisions applicable to
certain U.S. expatriates, or
(iv) in the case of common stock held by a person who holds more than
5% of such stock, ViroPharma is or has been, at any time within the shorter
of the five-year period preceding such sale or other disposition or the
period such non-U.S. holder held the common stock, a U.S. real property
holding corporation for U.S. federal income tax purposes; and
(c) Interest on notes not excluded from U.S. withholding tax as described
in (a) above and dividends on common stock after conversion generally will be
a subject to U.S. withholding tax at a 30% rate, except where an applicable
tax treaty provides for the reduction or elimination of such withholding tax.
ViroPharma may be required to report annually to the IRS and to each non-U.S.
holder the amount of interest paid to, and the tax withheld, if any, with
respect to each non-U.S. holder.
We do not believe that we are currently a U.S. real property holding
corporation or that we will become one in the future.
To satisfy the certification requirements referred to in (a)(iv) above,
Sections 871(h) and 881(c) of the Code and currently effective Treasury
Regulations thereunder require that either (1) the beneficial owner of a note
must certify, under penalties of perjury, to ViroPharma or its paying agent, as
the case may be, that such owner is a non-U.S. holder and must-provide such
owner's name and address, and U.S. taxpayer identification number, if any, or
(2) a securities clearing organization, bank or other financial institution that
holds customer securities in the ordinary course of its trade or business (a
"Financial Institution") and holds the note on behalf of the beneficial owner
thereof must certify, under penalties of perjury, to ViroPharma or its paying
agent, as the case may be, that such certificate has been received from the
beneficial owner and must furnish the payer with a copy thereof. Such
requirement will be fulfilled if the beneficial owner of a note certifies on
Internal Revenue Service Form W-8 or successor form, under penalties of perjury,
that it is a non-U.S. holder and provides its name and address or any Financial
Institution holding the note on behalf of the beneficial owner files a statement
with the withholding agent to the effect that it has received such a statement
from the beneficial owner--and furnishes the withholding agent with a copy
thereof.
Treasury Regulations effective for payments made after December 31, 2000, will
provide alternative methods for satisfying the certification requirements
described above and below, subject to certain grandfathering provisions. These
new regulations also require, in the case of notes held by a foreign
partnership, that (1) the certification be provided by the partners rather than
by the foreign partnership and (2) the partnership provide certain information,
including a Taxpayer identification number. A look-through rule will apply in
the case of tiered partnerships.
If a holder of a note or common stock who is not a U.S. holder is engaged in a
trade or business in the U.S. and if interest on the note, dividends on the
common stock, or gain realized on the sale, exchange or other disposition of the
note or common stock is effectively connected with the conduct of such trade or
business and, if certain tax treaties apply, is attributable to a U.S. permanent
establishment maintained by the Non-U.S. Holder in the U.S., the non-U.S.
holder, although exempt from U.S. withholding tax (provided that the
certification requirements discussed
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in the next sentence are met), will generally be subject to U.S. federal income
tax on such interest, dividends or gain on a net income basis in the same manner
as if it were a U.S. holder. In lieu of the certificate described above, such a
non-U.S. holder will be required, under currently effective Treasury
Regulations, to provide us with a properly executed Internal Revenue Service
Form 4224 or successor form in order to claim an exemption from withholding tax.
In addition, if such non-U.S. holder is a foreign corporation, it may be subject
to a branch profits tax equal to 30%, or such lower rate provided by an
applicable treaty, of its effectively connected earnings and profits for the
taxable year, subject to certain adjustments.
U.S. Federal Estate Tax
If interest on the notes qualifies for the portfolio interest exemption with
respect to a non-U.S. holder at the time of such holder's death, the notes will
not be included in the estate of the deceased non-U.S. holder for U.S. federal
estate tax purposes. Common stock held by an individual who at the time of death
is not a citizen or resident of the U.S. (as specially defined for U.S. federal
estate tax purposes) will be included in such individual's estate for U.S.
federal estate tax purposes, unless an applicable estate tax treaty otherwise
applies.
Non-U.S. holders should consult with their tax advisors regarding U.S. and
foreign tax consequences with respect to the notes and common stock.
Backup Withholding and Information Reporting
Backup withholding of U.S. federal income tax at a rate of 31% may apply to
payments pursuant to the terms of a note or common stock to a U.S. holder that
is not an "exempt recipient" and that fails to provide certain identifying
information, such as the holder's taxpayer identification number in the manner
required. Generally, individuals are not exempt recipients, whereas corporations
and certain other entities are exempt recipients. Payments made in respect of a
note or common stock must be reported to the Internal Revenue Service, unless
the U.S. holder is an exempt recipient or otherwise establishes an exemption.
In the case of payments of interest on a note to a non-U.S. holder, Treasury
Regulations provide that backup withholding and information reporting will not
apply to payments with respect to which either requisite certification has been
received or an exemption has otherwise been established, provided that neither
ViroPharma nor a paying agent has actual knowledge that the holder is a U.S.
holder or that the conditions of any other exemption are not in fact satisfied.
Dividends on the common stock paid to non-U.S. holders that are subject to
U.S. withholding tax, as described above, generally will be exempt from U.S.
backup withholding tax but will be subject to certain information reporting.
Payments of the proceeds of the sale of a note or common stock to or through a
foreign office of a U.S. broker or a foreign office of a broker that is a U.S.
related person (referred to as a "controlled foreign corporation" within the
meaning of the Code), or a foreign office of a foreign person, 50% or more of
whose gross income from all sources for the three-year period ending with the
close of its taxable year preceding the payment was effectively connected with
the conduct of a trade or business within the U.S., are currently subject to
certain information reporting requirements, unless the payee is an exempt
recipient or such broker has evidence in its records that the payee is a non-
U.S. holder and no actual knowledge that such evidence is false and certain
other conditions are met. Temporary Treasury Regulations indicate that such
payments are not currently subject to backup withholding.
Under current Treasury Regulations, payments of the proceeds of a sale of a
note or common stock to or through the U.S. office of a broker will be subject
to information reporting and backup withholding unless the payee certifies under
penalties of perjury as to his or her status as a non-U.S. holder and satisfies
certain other qualifications (and no agent of the broker who is responsible for
receiving or reviewing such statement has actual knowledge that it is incorrect)
and provides his or her name and address or the payee otherwise establishes an
exemption.
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Any amounts withheld under the backup withholding rules from a payment to a
holder of a note or common stock may be allowed as a refund or credit against
such holder's U.S. federal income tax provided that the required information is
furnished to the Internal Revenue Service in a timely manner.
As noted above, new regulations will generally be applicable to payments
made after December 31, 2000. In general, these new regulations do not
significantly alter the substantive withholding and information reporting
requirements but unify current certification procedures and forms and clarify
reliance standards. Under these new regulations, special rules apply which
permit the shifting of primary responsibility for withholding to certain
financial intermediaries acting on behalf of beneficial owners. A holder of a
note or common stock should consult with its tax advisor regarding the
application of the backup withholding rules to its particular situation, the
availability of an exemption therefrom, the procedure for obtaining such an
exemption, if available, and the impact of these new regulations on payments
made with respect to notes or common stock after December 31, 2000.
The preceding discussion of certain U.S. federal income tax considerations
is for general information only and is not tax advice. Accordingly, each
prospective investor should consult its own tax adviser as to the particular
U.S. federal, state, and local tax consequences of purchasing, holding and
disposing of the notes and common stock of ViroPharma. Tax advisors should also
be consulted as to the U.S. estate and gift tax consequences and the foreign tax
consequences of purchasing, holding and disposing of the notes and common stock
of ViroPharma, as well as the consequences of any proposed change in applicable
laws.
SELLING SECURITYHOLDERS
We originally issued the notes in a private placement in March 2000.
Selling securityholders may offer and sell the notes and the underlying common
stock pursuant to this prospectus.
The following table contains information as of April 30, 2000, with respect
to the selling securityholders and the principal amount of notes and the
underlying common stock beneficially owned by each selling security holders that
may be offered using this prospectus.
<TABLE>
<CAPTION>
Principal Amount of
Notes Beneficially Percentage of Number of Percentage of
Owned and Notes Shares of That Common Stock
Name Offered Hereby Outstanding May be Sold(1) Outstanding(2)
<S> <C> <C> <C> <C>
AIG / National Union Fire Insurance $ 590,000 * 5,405 *
Argent Classic Convertible 1.0 18,323 *
Arbitrage Fund (Bermuda) L.P. 2,000,000
Castle Convertible Fund, Inc. 250,000 * 2,290 *
Delaware PERS 1,075,000 * 9,848 *
First Republican Bank 85,000 * 778 *
ICI American Holdings Trust 560,000 * 5,130 *
Island Holdings 45,000 * 412 *
Lipper Convertibles, L.P. 7,000,000 3.9 64,131 *
Nalco Chemical Company 290,000 * 2,656 *
Paloma Securities L.L.C. 4,000,000 2.2 36,646 *
State of Oregon Equity 3,200,000 1.8 29,317 *
Starvest Combined Portfolio 750,000 * 6,871 *
Zeneca Holdings Trust 535,000 * 4,901 *
Any other holder of Notes or
future transferee, pledgee, donee
or successor of any holder (3)(4) 159,620,000 88.7 1,462,391 8.8
</TABLE>
________________________
* Less than 1%.
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(1) Assumes conversion of all of the holder's notes at a conversion price of
$109.15 per share of common stock. However, this conversion price will be
subject to adjustment as described under "Description of Notes--Conversion of
Notes." As a result, the amount of common stock issuable upon conversion of the
notes may increase or decrease in the future.
(2) Calculated based on Rule 13d-3(d)(i) of the Exchange Act using 15,182,915
shares of common stock outstanding as of April 30, 2000. In calculating this
amount, we treated as outstanding the number of shares of common stock issuable
upon conversion of all of that particular holder's notes. However, we did not
assume the conversion of any other holder's notes.
(3) Information about other selling security holders will be set forth in
prospectus supplements, if required.
(4) Assumes that any other holders of notes, or any future transferees,
pledgees, donees or successors of or from any such other holders of notes, do
not beneficially own any common stock other than the common stock issuable upon
conversion of the notes at the initial conversion rate.
We prepared this table based on the information supplied to us by the
selling securityholders named in the table.
The selling securityholders listed in the above table may have sold or
transferred, in transactions exempt from the registration requirements of the
Securities Act, some or all of their notes since the date on which the
information in the above table is presented. Information about the selling
securityholders may change from over time. Any changed information will be set
forth in prospectus supplements.
Because the selling securityholders may offer all or some of their notes or
the underlying common stock from time to time, we cannot estimate the amount of
the notes or underlying common stock that will be held by the selling
securityholders upon the termination of any particular offering. See "Plan of
Distribution."
PLAN OF DISTRIBUTION
We will not receive any of the proceeds of the sale of the notes and the
underlying common stock offered by this prospectus. The notes and the underlying
common stock may be sold from time to time to purchasers:
. directly by the selling securityholders;
. through underwriters, broker-dealers or agents who may receive compensation
in the form of discounts, concessions or commissions from the selling
securityholders or the purchasers of the notes and the underlying common
stock.
The selling securityholders and any such broker-dealers or agents who
participate in the distribution of the notes and the underlying common stock may
be deemed to be "underwriters." As a result, any profits on the sale of the
notes and underlying common stock by selling securityholders and any discounts,
commissions or concessions received by any such broker-dealers or agents might
be deemed to be underwriting discounts and commissions under the Securities Act.
If the selling securityholders were to deemed underwriters, the selling
securityholders may be subject to certain statutory liabilities of, including,
but not limited to, Sections 11, 12 and 17 of the Securities Act and Rule 10b-5
under the Exchange Act.
If the notes and underlying common stock are sold through underwriters or
broker-dealers, the selling securityholders will be responsible for underwriting
discounts or commissions or agent's commissions.
The notes and underlying common stock may be sold in one or more
transactions at:
. fixed prices;
. prevailing market prices at the time of sale;
38
<PAGE>
. varying prices determined at the time of sale; or
. negotiated prices.
These sales may be effected in transactions:
. on any national securities exchange or quotation service on which the notes
and underlying common stock may be listed or quoted at the time of the sale,
including the Nasdaq National Market in the case of the common stock;
. in the over-the-counter market;
. in transactions otherwise than on such exchanges or services or in the over-
the-counter market; or
. through the writing of options.
These transactions may include block transactions or crosses. Crosses are
transactions in which the same broker acts as an agent on both sides of the
trade.
In connection with sales of the notes and underlying common stock or
otherwise, the selling securityholders may enter into hedging transactions with
broker-dealers. These broker-dealers may in turn engage in short sales of the
notes and underlying common stock in the course of hedging their positions. The
selling securityholders may also sell the notes and underlying common stock
short and deliver notes and underlying common stock to close out short
positions, or loan or pledge notes and underlying common stock to broker-dealers
that in turn may sell the notes and underlying common stock.
To our knowledge, there are currently no plans, arrangements or
understandings between any selling securityholders and any underwriter, broker-
dealer or agent regarding the sale of the notes and the underlying common stock
by the selling securityholders. Selling securityholders may not sell any or all
of the notes and the underlying common stock offered by them pursuant to this
prospectus. In addition, we cannot assure you that any such selling
securityholder will not transfer, devise or gift the notes and the underlying
common stock by other means not described in this prospectus.
Our common stock trades on the Nasdaq National Market under the symbol
"VPHM." We do not intend to apply for listing of the notes on any securities
exchange or for quotation through Nasdaq. Accordingly, no assurance can be given
as to the development of liquidity or any trading market for the notes. See
"Risk Factors--A public market may not develop for the notes."
There can be no assurance that any selling securityholder will sell any or
all of the notes or underlying common stock pursuant to this prospectus. In
addition, any notes or underlying common stock covered by this prospectus that
qualify for sale pursuant to Rule 144 or Rule 144A of the Securities Act may be
sold under Rule 144 or Rule 144A rather than pursuant to this prospectus.
The selling securityholders and any other person participating in such
distribution will be subject to the Exchange Act. The Exchange Act rules
include, without limitation, Regulation M, which may limit the timing of
purchases and sales of any of the notes and the underlying common stock by the
selling securityholders and any other such person. In addition, Regulation M of
the Exchange Act may restrict the ability of any person engaged in the
distribution of the notes and the underlying common stock to engage in market-
making activities with respect to the particular notes and the underlying common
stock being distributed for a period of up to five business days prior to the
commencement of such distribution. This may affect the marketability of the
notes and the underlying common stock and the ability of any person or entity to
engage in market-making activities with respect to the notes and the underlying
common stock.
39
<PAGE>
Pursuant to the registration rights agreement filed as an exhibit to this
registration statement, we and the selling securityholders will be indemnified
by the other against certain liabilities, including certain liabilities under
the Securities Act or will be entitled to contribution in connection with these
liabilities.
We have agreed to pay substantially all of the expenses incidental to the
registration, offering and sale of the notes and underlying common stock to the
public other than commissions, fees and discounts of underwriters, brokers,
dealers and agents.
LEGAL MATTERS
The validity of ViroPharma Incorporated's securities offered hereby will be
passed upon for ViroPharma Incorporated by Pepper Hamilton LLP, Berwyn,
Pennsylvania.
EXPERTS
The financial statements of ViroPharma Incorporated as of December 31, 1998
and 1999 and for each of the years in the three-year period ended December 31,
1999 and for the period from December 5, 1994 (inception) to December 31, 1999
have been incorporated by reference herein and in the registration statement in
reliance upon the report of KPMG LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
ADDITIONAL INFORMATION
A registration statement on Form S-3 with respect to the shares offered
hereby (together with any amendments, exhibits and schedules thereto) has been
filed with the Securities and Exchange Commission under the Securities Act. This
prospectus does not contain all of the information contained in such
registration statement on Form S-3, certain portions of which have been omitted
pursuant to the rules and regulations of the Securities and Exchange Commission.
For further information with respect to ViroPharma and the shares offered
hereby, reference is made to the registration statement on Form S-3. Statements
contained in this prospectus regarding the contents of any contract or any other
documents are not necessarily complete and, in each instance, reference in
hereby made to the copy of such contract of document filed as an exhibit to the
registration statement on Form S-3. The registration statement may be inspected
without charge at the Securities and Exchange Commission's principal office in
Washington D.C., and copies of all of any part thereof may be obtained from the
Public Reference section, Securities and Exchange Commission, Washington D.C.,
20549, upon payment of prescribed fees.
We also file annual, quarterly and current reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any reports, statements or other information we file at the Securities and
Exchange Commission public reference rooms located at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, IL 60661 and 7 World Trade Center, Suite 1300, New York, NY
10048.
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information on the public reference rooms. Our filings are also
available to the public from commercial document retrieval services and at the
web site maintained by the Securities and Exchange Commission at
http://www.sec.gov.
The Securities and Exchange Commission allows us to incorporate by
reference information into this prospectus, which means that we can disclose
important information to you by referring you to another document filed
separately with the Securities and Exchange Commission. The information
incorporated by reference is deemed to be part of this prospectus, except for
any information superseded by information in this prospectus. This prospectus
incorporates by reference the documents set forth below that we have previously
filed with the Securities and Exchange Commission. These documents contain
important information about us, our business and our finances.
The documents that we are incorporating by reference are:
1. Our Quarterly Report on Form 10-Q for the quarter ended March 31, 2000;
40
<PAGE>
2. Our Annual Report on Form 10-K for the year ended December 31, 1999;
3. Our Current Reports on Form 8-K filed on February 16, 2000, February 25,
2000, April 11, 2000 and May 26, 2000;
4. Our Definitive Proxy Statement filed on April 14, 2000;
5. The description of our common stock contained in the Registration Statement
on Form 8-A filed with the Securities and Exchange Commission on November 8,
1996; and
6. The description of rights to purchase preferred shares contained in the
Registration Statement on Form 8-A filed with the Securities and Exchange
Commission on September 21, 1998.
Any documents which we file pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act after the date of this prospectus but before the end of any
offering of securities made under this prospectus will also be considered to be
incorporated by reference.
If you request, either orally or in writing, we will provide you with a
copy of any or all documents which are incorporated by reference. We will
provide such documents to you free of charge, but will not include any exhibits,
unless those exhibits are incorporated by reference into the document. You
should address written requests for documents to Thomas F. Doyle, Vice President
and General Counsel, ViroPharma Incorporated, 405 Eagleview Boulevard, Exton, PA
19341, (610) 458-7300.
We undertake no obligation to publicly update any forward-looking
statements, whether as a result of new information, future events or otherwise.
You are advised, however, to consult any further disclosures we make on related
subjects in our 10-Q, 8-K and 10-K reports to the Securities and Exchange
Commission. Also note that we provide a cautionary discussion of risks and
uncertainties relevant to our business in the "Risk Factors" section of this
prospectus. These are factors that we think could cause our actual results to
differ materially from expected results. Other factors besides those listed here
could also adversely affect us. This discussion is provided as permitted by the
Private Securities Litigation Reform Act of 1995.
41
<PAGE>
Part II
Information Not Required In Prospectus
Item 14. Other Expenses of Issuance and Distribution
The following table shows the estimated expenses of the issuance and
distribution of the securities offered hereby:
SEC registration fee................................. $47,520
Printing fees*....................................... 2,500
Legal fees and expenses*............................. 7,500
Accounting fees and expenses*........................ 5,000
Miscellaneous fees and expenses*..................... 2,000
TOTAL........................................... $64,520
All of the amounts shown are estimates except for the Securities and
Exchange Commission registration fee, the Nasdaq National Market listing fee and
the National Association of Securities Dealers filing fee.
Item 15. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law ("Section 145") permits
a corporation to indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he is or was a director, officer or agent of the corporation or
another enterprise if serving at the request of the corporation. Depending on
the character of the proceeding, a corporation may indemnify against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with such action, suit or
proceeding if the person indemnified acted in good faith and, in respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. In the case of an action by or in the right of the corporation, no
indemnification may be made with respect to any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine that, despite the adjudication
of liability, such person is fairly and reasonably entitled to indemnity for
such expenses which the court shall deem proper. Section 145 further provides
that to the extent a director, officer, employee or agent of a corporation has
been successful in the defense of any action, suit or proceeding referred to
above, or in the defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
The Certificate of Incorporation of ViroPharma limits the personal
liability of directors to ViroPharma or any of its stockholders for monetary
damages for breach of fiduciary duty as a director, provided, however, that this
limitation does not apply to any liability of a director (i) for any breach of
the director's duty of loyalty to ViroPharma or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of Title 8 of the General
Corporation Law of Delaware, or (iv) for any transaction from which the director
derived an improper personal benefit.
We have entered into indemnification agreements with each of our directors
and executive officers. In addition, section 6.4 of ViroPharma's By-laws
provides for the indemnification, to the full extent authorized by law, of any
person made, or threatened to be made, a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that such person, his testator or intestate, is or was a director, officer or
employee of ViroPharma or any predecessor of ViroPharma, or serves or served any
other enterprise as a director, officer or employee at the request of ViroPharma
or any predecessor of ViroPharma. We also have entered into indemnification
agreement with each of our directors and executive officers.
II-1
<PAGE>
Item 16. List of Exhibits
The exhibits filed as part of this registration statement are as follows:
Exhibit Description
- ------------ ----------------------------------------------------------------
4.1(1) Indenture dated as of March 1, 2000 of ViroPharma Incorporated
to Summit Bank as Trustee (including the form of note).
4.2(1) Registration Rights Agreement dated as of March 1, 2000 by and
among ViroPharma Incorporated, Morgan Stanley & Co. Incorporated
and US Bancorp Piper Jaffray Inc.
5.1* Opinion of Pepper Hamilton LLP regarding legality of securities
being registered.
12.1* Computation of Ratio of Earnings to Fixed Charges
23.1* Consent of KPMG LLP
23.2* Consent of Pepper Hamilton LLP (included in its Opinion filed as
Exhibit 5.1 hereto).
24.1* Powers of Attorney (included on signature page)
25.1* Form of T-1 Statement of Eligibility of Trustee for Indenture
Under the Trust Indenture Act of 1939
* Filed herewith.
(1) Incorporated by reference to exhibits filed with the Company's Quarterly
Report on Form 10-Q for the Quarter Ended March 31, 2000.
Item 17. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the Securities
Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
Provided, however, that paragraph (1)(i) and 1(ii) above do not apply if
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
section 13 or section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
The Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in Exton, Pennsylvania on May 26, 2000.
ViroPharma Incorporated
By /s/ Claude H. Nash
------------------------------
Claude H. Nash, Ph.D.
President, Chief Executive Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Exchange Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated. Each person whose
signature appears below in so signing also makes, constitutes and appoints
Claude H. Nash, Ph.D. and Vincent J. Milano, and each of them acting alone, his
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to execute and cause to be filed with the Securities and Exchange
Commission any and all amendments and post-effective amendments to this
Registration Statement and a related registration statement that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
and in each case to file the same, with all exhibits thereto and other documents
in connection therewith, and hereby ratifies and confirms all that said
attorney-in-fact or his substitute or substitutes may do or cause to be done by
virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------- ------------------------------------------------ -------------
<S> <C> <C>
/s/ Claude H. Nash President, Chief Executive Officer and Chairman May 26, 2000
- -------------------------- of the Board of Directors (Principal Executive
Claude H. Nash, Ph.D. Officer)
/s/ Vincent J. Milano Vice President, Chief Financial Officer and May 26, 2000
- -------------------------- Treasurer (Principal Financial and Accounting
Vincent J. Milano Officer)
/s/ Frank Baldino Director May 26, 2000
- --------------------------
Frank Baldino, Jr., Ph.D.
/s/ Robert J. Glaser Director May 26, 2000
- --------------------------
Robert J. Glaser
/s/ Ann H. Lamont Director May 26, 2000
- --------------------------
Ann H. Lamont
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Howard Pien Director May 26, 2000
- -------------------------
Howard Pier
/s/ Michel de Rosen Director May 26, 2000
- --------------------------
Michel de Rosen
/s/ David J. Williams Director May 26, 2000
- --------------------------
David J. Williams
</TABLE>
II-4
<PAGE>
Exhibit Index
Exhibit Description
- ------------ --------------------------------------------------------------
4.1(1) Indenture dated as of March 1, 2000 of ViroPharma Incorporated
to Summit Bank as Trustee (including the form of note).
4.2(1) Registration Rights Agreement dated as of March 1, 2000 by and
among ViroPharma Incorporated, Morgan Stanley & Co.
Incorporated and US Bancorp Piper Jaffray Inc.
5.1* Opinion of Pepper Hamilton LLP regarding legality of securities
being registered.
12.1* Computation of Ratio of Earnings to Fixed Charges
23.1* Consent of KPMG LLP
23.2* Consent of Pepper Hamilton LLP (included in its Opinion filed
as Exhibit 5.1 hereto).
24.1* Powers of Attorney (included on signature page)
25.1* Form of T-1 Statement of Eligibility of Trustee for Indenture
* Filed herewith.
(1) Incorporated by reference to exhibits filed with the Company's Quarterly
Report on Form 10-Q for the Quarter Ended March 31, 2000.
II-5
<PAGE>
EXHIBIT 5.1
[PEPPER HAMILTON LLP LETTERHEAD]
May 27, 2000
ViroPharma Incorporated
405 Eagleview Boulevard
Exton, Pennsylvania 19341
RE: REGISTRATION STATEMENT OF FORM S-3
Ladies and Gentlemen:
This opinion is furnished to you in connection with a Registration
Statement on Form S-3 (the "Registration Statement") filed with the Securities
and Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), relating to the registration of (i) $180,000,000
principal amount of 6% Convertible Subordinated Notes due 2007 ("Notes") and
(ii) such indeterminate number of shares of Common Stock, $0.002 par value per
share, issuable upon conversion of the Notes (the "Conversion Shares"), of
ViroPharma Incorporated, a Delaware corporation (the "Company"), all of which
Notes and Conversion Shares, if and when sold, will be sold by certain
securityholders of the Company (the "Selling Securityholders").
We have examined a signed copy of the Registration Statement and signed
copies of all Exhibits thereto requiring siganture, including but not limited to
the Indenture dated as of March 1, 2000 of ViroPharma Incorporated to Summitt
Bank as Trustee, the Rule 144A Global Note No. G-1 in principal amount of U.S.
$149,900,000 dated March 1, 2000, the Definitive Note P-1 in the principal
amount of $100,000 dated March 1, 2000 and the Rule 144A Global Note No. G-2 in
principal amount of U.S. $30,000,000 dated March 8, 2000, forms of which have
been filed with the Commission. We have also examined and relied upon copies of
minutes of meetings of the Board of Directors of the Company, a copy of the By-
Laws of the Company, as amended, and a copy of the Amended and Restated
Certificate of Incorporation of the Company.
In our examination of the foregoing documents, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals, the conformity to original documents of all documents submitted to
us as certified, facsimile or photostatic copies, the authenticity of the
originals of such latter documents and the legal competence of all signatories
to such documents.
We express no opinion herein as to the laws of any state or jurisdiction
other than the Delaware General Corporation Law, the state laws of the
Commonwealth of Pennsylvania and the federal laws of the United States of
America. To the extent that any other laws govern the matters as to which we are
opining herein, we have assumed that such laws are identical to the state laws
of the Commonwealth of Pennsylvania, and we are expressing no opinion herein as
to whether such assumption is reasonable or correct. We note in this regard that
the Notes state that they are to be governed by the laws of the State of New
York.
Our opinion in paragraph 1 below is qualified to the extent that it may be
subject to or affected by (i) applicable bankruptcy, insolvency, reorganization,
moratorium, usury, fraudulent conveyance or similar laws affecting the rights of
creditors generally and (ii) duties and standards imposed on creditors and
parties to contracts, including, without limitation, requirements of good faith,
reasonableness and fair dealing. We express no opinion as to the enforceability
of any provision of any of the Notes that purports to select the laws by which
it or any other agreement or instrument is to be governed. Furthermore, we
express no opinion as to the availability of any equitable or specific remedy,
or as to the successful assertion of any equitable defense, upon any breach of
any agreements or documents or obligations referred to therein, or any other
matters, inasmuch as the availability of such remedies or defenses may be
subject to the discretion of a court.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Notes have been duly and validly authorized and issued and are
binding obligations of the Company; and
2. The Conversion Shares have been duly and validly authorized and, when
issued upon conversion of the Notes in accordance with the terms of such Notes,
will be validly issued, fully paid and non-assessable.
It is understood that this opinion is to be used only in connection with
the offer and sale of the Notes or the Conversion Shares while the Registration
Statement is in effect.
Please note that we are opining only as to the matters expressly set forth
herein, and no opinion should be inferred as to any other matters. This opinion
is based upon currently existing statutes, rules, regulations and judicial
decisions, and we disclaim any obligation to advise you of any change in any of
these sources of law or subsequent legal or factual developments which might
affect any matters or opinions set forth herein.
We hereby consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Securities Act and to the use of our
name therein and in the related Prospectus under the caption "Legal Matters." In
giving such consent, we do not hereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act or the
rules and regulations of the Commission.
Sincerely,
PEPPER HAMILTON LLP
/s/ PEPPER HAMILTON LLP
<PAGE>
Exhibit 12.1
ViroPharma Incorporated
Schedule of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
Qtr. Ended Fiscal Year
March 31,
---------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Net Loss (6,769,928) (29,500,038) (26,402,116) (11,449,883) (6,395,004) (3,854,862)
Add
Fixed charges 1,212,181 5,339,489 250,842 115,883 1,663,014 58,952
-----------------------------------------------------------------------------------------
Earnings as Adjusted (5,557,747) (24,160,549) (26,151,274) (11,334,000) (4,731,990) (3,795,910)
=========================================================================================
Fixed Charges:
Interest (Gross) 935,711 153,956 151,712 64,492 21,977 4,500
Portion of rent 70,579 280,830 250,800 130,020 110,550 89,430
representative
of the interest
factor
Amortization of 66,735
debt issuance
costs
Fixed charges 1,073,025 434,786 402,512 194,512 132,527 93,930
-----------------------------------------------------------------------------------------
Deficiency of
earnings to
cover fixed
charges 6,951,766 34,574,571 26,402,118 11,449,883 7,992,345 3,873,966
=========================================================================================
</TABLE>
<PAGE>
EXHIBIT 23.1
ACCOUNTANTS' CONSENT
The Board of Directors
ViroPharma Incorporated:
We consent to the use of our report incorporated herein by reference.
KPMG LLP
Princeton, New Jersey
May 25, 2000
<PAGE>
Exhibit 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(B)(2) X
-
(Name of Trustee)
SUMMIT BANK
(I.R.S. Employer Identification No.)
22-0834947
(Address of Principal Executive Offices)
210 Main Street
Hackensack, NJ
07601
(Name of Obligor)
ViroPharma Incorporated
(State of Incorporation)
Delaware
(I.R.S. Employer Identification No.)
23-2789550
(Address of Principal Executive Offices)
405 Eagleview Boulevard
Exton, PA 19341
(Title of Indenture Securities)
<PAGE>
6% Convertible Subordinated Notes due 2007
<PAGE>
1. General Information
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervisory authority to which it
is subject:
Name Address
----------------------------------------------------
Federal Reserve Bank (2nd District) New York, NY
Federal Deposit Insurance Corporation Washington, D.C.
New Jersey Department of Banking Trenton, NJ
(b) Whether it is authorized to exercise corporate trust powers.
Yes
2. Affiliations with obligor
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None (See Note on page 6)
3. Voting securities of the trustee
Furnish the following information as to each class of voting securities of
the trustee: As of March 31, 2000
--------------
Col. A Col. B
----------------------------------------
Summit Bank Common Stock 34,590,795 shares
Summit Bank, Preferred Stock 120,000 shares
4. Trusteeships under other indentures
If the trustee is a trustee under another indenture under which any other
securities, or certificates of interest or participation in any other
securities, of the obligor are outstanding, furnish the following
information:
Not applicable - see answer to item 13
<PAGE>
5. Interlocking directorates and similar relationships with the obligor or
underwriters
If the trustee or any of the directors or executive officers of the trustee
is a director, officer, partner, employee, appointee, or representative of
the obligor or of any underwriter for the obligor, identify each such
person having any such connection and state the nature of each such
connection.
Not applicable - see answer to item 13
6. Voting securities of the trustee owned by the obligor or its officials
Furnish the following information as to the voting securities of the
trustee owned beneficially by the obligor and each director, partner, and
executive officer of the obligor:
Not applicable - see answer to item 13
7. Voting securities of the trustee owned by underwriters or their officials
Furnish the following information as to the voting securities of the
trustee owned beneficially by each underwriter for the obligor and each
director, partner, and executive officer of each such underwriter:
8. Securities of the obligor owned or held by the trustee
Furnish the following information as to securities of the obligor owned
beneficially or held as collateral security for obligations in default by
the Trustee:
Not applicable - see answer to item 13
9. Securities of underwriters owned or held by the trustee
If the trustee owned beneficially or holding as collateral security for
obligations in default any securities or an underwriter for the obligor,
furnish the following information as to each class of securities of such
underwriter any of which are owned or held by the trustee:
Not applicable - see answer to item 13
<PAGE>
10. Ownership or holdings by the trustee of voting securities of certain
affiliates or security holders of the obligor
If the trustee owns beneficially or holds as collateral security for
obligations in default voting securities of a person who, to the knowledge
of the trustee (1) owns 10 percent or more of the voting stock of the
obligor or (2) is an affiliate, other than a subsidiary, of the obligor,
furnish the following information as to the voting securities of such
person:
Not applicable - see answer to item 13
11. Ownership or holdings by the trustee of any securities of a person owning
50 percent or more of the voting securities of the obligor
If the trustee owns beneficially or holds as collateral security for
obligations in default any securities of a person who, to the knowledge of
the trustee, owns 50 percent or more of the voting securities of the
obligor, furnish the following information as to each class of securities
of such person any of which are owned or held by the trustee:
Not applicable - see answer to item 13
12. Indebtedness of the obligor to the trustee
(a) State whether there is or has been a default with respect to the
securities under this indenture. Explain the nature of any such default.
None
(b) If the trustee is a trustee under another indenture under which any
other securities, or certificates of interest or participation in any other
securities, of the obligor are outstanding, or is trustee for more than one
outstanding series of securities under the indenture, sate whether there
has been a default under any such indenture or series, identify the
indenture or series affected, and explain the nature of any such default.
13. Defaults by the obligor
(a) State whether there is or has been a default with respect to the
securities under this indenture. Explain the nature of any such default.
None
(b) If the trustee is a trustee under another indenture under which any
other securities, or certificates of interest or participation in any other
securities, of the obligor are outstanding, or is trustee for more than one
outstanding series of securities under the
<PAGE>
indenture, state whether there has been a default under any such indenture
or series, identify the indenture or series affected, and explain the
nature of any such default.
None
<PAGE>
14. Affiliations with the underwriters
If any underwriter is an affiliate of the trustee, describe each such
affiliation
15. Foreign trustee
Identify the order or rule pursuant to which the trustee is authorized to
act as sole trustee under indenture qualified or to be qualified under the
Act.
Not applicable
16. List of Exhibits
List below all exhibits filed as part of this statement of eligibility
1. *Copy of Articles of Association of the Trustee as now in effect.
2. No certificate of authority of the Trustee to commence business is
furnished since this authority is contained in the Articles of
Association of the Trustee.
3. No copy of the authorization of the trustee to exercise corporate
trust powers is furnished since this authorization is contained in the
Articles of Association of the Trustee.
4. *Copy of the existing By-Laws of the Trustee as now in effect.
5. Not applicable.
6. The consent of the Trustee required by Section 321(b) of the Act.
7. A copy of the latest report of Condition of the Trustee published
pursuant to law or the requirements of its supervising or examining
authority.
8. Not applicable.
9. Not applicable.
*Exhibits thus designated have heretofore been filed with the Securities
and Exchange Commission, have not been amended since filing and are
incorporated herein by reference (see Exhibits TIA(i) and TIA(ii) File No.
285667)
<PAGE>
NOTE
The Trustee disclaims responsibility for the accuracy or completeness of
information contained in this Statement of Eligibility and Qualification not
known to the trustee and not obtained by it through reasonable investigation and
as to which information it has obtained from the obligor and has had to rely or
will obtain from the principal underwriters and will have to rely.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, Summit Bank, a corporation organized and existing under the laws of the
State of New Jersey, has duly caused this Statement of Eligibility and
Qualification to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Hackensack and State of New Jersey on the 26th
day of May, 2000.
SUMMIT BANK
By: /s/ Debra A. Schwalb
----------------------
Debra A. Schwalb
Vice President
<PAGE>
CONSENT OF TRUSTEE
Summit Bank, as trustee (the "Trustee") under an indenture to be entered
into between itself and ViroPharma Incorporated hereby consents to Section
321(b) of the Trust Indenture Act of 1939, as amended, to the furnishing by
Federal State, Territorial or District Authorities to the Securities and
Exchange Commission of all reports, records or other information relating
thereto.
SUMMIT BANK
By: /s/ Debra A. Schwalb
Debra A. Schwalb
Vice President
Dated: May 26, 2000
